FHA Updates Rules on Selling Beneficial Interests in Groups of Mortgages

FHA issued a mortgagee letter regarding the process for selling beneficial interests in groups of mortgages.

The new requirements are meant to formalize rules for when a mortgagee seeks to sell a beneficial interest related to all of the mortgages in a group as an entirety, as opposed to an interest in any specific mortgage.  The transfer may only be made pursuant to a declaration of trust which has been approved by FHA prior to the sale.  The declaration of trust must describe the beneficial ownership of the assets at issue and how such assets are to be distributed to the trust beneficiaries.  Further:

• The mortgages may only be sold to and held by an FHA-approved mortgagee;
• They may only be serviced or sub-serviced by the mortgagee or another FHA-approved servicer;
• If the FHA approvals for any of the mortgagees or servicers are terminated, or if the trust is terminated, there must be provisions to transfer the mortgages to other approved mortgagees or servicers; and
• The beneficial interest certificates may not provide the certificate holder any interest in the individual mortgages or any rights under the related contracts of insurance.

The mortgagee letter provides for submission of detailed information in a transmittal letter to FHA prior to the sale in order to obtain approval, including:

• The named parties to the declaration of trust and their FHA mortgagee status and number;
• A description of the sale and any assignments, transfers, or pledges of interests or partial interests in any mortgages;
• The relevant regulation governing the sale of the beneficial interest; and
• A list of each provision in the agreement (by section and page number) which is needed to satisfy FHA’s requirements.

If a declaration of trust is modeled on a prior declaration which FHA has previously approved, the mortgagee must submit a comparison showing all changes made.  Further, copies must be submitted to FHA of any agreements governing servicing and subservicing; custody; nominees; participation; and definition of terms to the agreements.  FHA must also provide prior approval to any subsequent amendments to the trust documents.

The mortgagee letter took effect on January 31, 2026.