MBA Urges HUD to Maintain Current FHA HECM Assignment Options
The Mortgage Bankers Association, in a letter this week to HUD, urged the department to maintain its current assignment election option for filing claims on FHA Home Equity Conversion Loans.
HUD recently offered a supplemental notice of proposed rulemaking regarding a mortgagee’s option to file a claim when the HECM loan balance reaches 98 percent of the maximum claim amount.
In the letter, MBA recommended HUD maintain its current assignment election option, rather than require mortgagees to assign a HECM loan to HUD when the loan reaches 98 percent of the maximum claim amount. MBA Senior Vice President Public Policy and Industry Relations Steve O’Connor wrote that although MBA understands FHA’s efforts to enhance its risk management and assessment mechanisms, there are instances in which some HECM loans may not be assignable when the loan balance reaches 98 percent of the maximum claim amount because the loan is either in due and payable status or in default and may not be assigned while “uncured.”
“This presents the possibility that while the loan is being ‘cured’ (if curable) through loss mitigation efforts, etc. the unpaid loan balance may exceed 98 percent or 100 percent,” the letter said. “As a result, it is important for HUD to clarify: (1) whether a servicer must attempt to assign an eligible loan under these circumstances; (2) whether the servicer will be forced to take a loss if they miss the required assignment threshold due to a loan in due and payable status or in default; and (3) whether the consequences of a failure to assign will result in a curtailable event.”
O’Connor said these considerations become more significant in situations where a servicer is faced with a HECM loan in default and the loan is near the 98 percent maximum claim amount. “In some cases, this requirement may act as a disincentive for servicers to pursue loss mitigation efforts, ultimately harming the borrowers that the program seeks to support,” he said.
MBA said currently, most if not all servicers already opt to timely assign HECM loans when the maximum claim amount reaches 98 percent, due in substantial part to Ginnie Mae guidelines for loans pooled into Ginnie Mae mortgage-backed securities, which require issuers to buy out HECM loans when they reach 98 percent of the maximum claim amount.
“These repurchases impose demanding capital requirements upon issuer-mortgagees, and subsequently cause servicers to seek the assignment of these loans to HUD as soon as possible,” MBA said. “This regular and customary practice already supports FHA in its risk management objectives, while a mandated threshold has the potential to cause unintended consequences for both borrowers and servicers.”
Should HUD determine that it is necessary to mandate assignment, MBA recommended HUD consider creation of an “assignable window” within which a servicer may assign a HECM loan to HUD once a HECM becomes assignable, noting this would provide additional flexibility for servicers who may be unable to assign when a HECM loan reaches 98 percent of the maximum claim amount.
MBA also asked for clarity on whether a servicer can or should assign a HECM loan if a sale of the home is pending and whether a servicer may assign a loan with a loan balance in excess of 100 percent if the sale ultimately falls through. “In both instances, this may cause an undue burden on an older borrower who is attempting to sell their property due to a life event or changed circumstance,” the letter said.
