On May 19, 2016, HUD published a proposed rule to codify and clarify existing Home Equity Conversion Mortgage (HECM) policies that were implemented through Mortgagee Letters, under the authority granted to HUD in the Housing and Economic Recovery Act of 2008 and the Reverse Mortgage Stabilization Act of 2013, and to make additional changes to the HECM program.
Some of the key changes that HUD proposes to make with this rulemaking include, but are not limited to, the following:
- Disclosure of Available HECM Program Options. This rule proposes to require mortgagees to inform potential HECM borrowers of all of the HECM products, features and options that FHA insures, in a manner acceptable to the Federal Housing Commissioner (Commissioner), irrespective of the particular HECM products offered by the mortgagee.
- Capping Lifetime Interest Rate Adjustments for Adjustable Interest Rate Products. For annual adjustable interest rate HECMs, this rule proposes to cap periodic interest rate increases and decreases at one percentage point and cap lifetime interest rate increases and decreases at five percentage points. For monthly adjustable interest rate HECMs, this rule proposes to cap lifetime increases or decreases to the interest rate at five percentage points.
- Interest Rate Lock-In. This rule proposes to amend the definition of “expected average mortgage interest rate,” to provide that the mortgagee, with the agreement of the borrower, may lock-in the expected average mortgage interest rate prior to the date of loan closing or establish the expected average mortgage interest rate on the date of loan closing.
- Super Liens. This rule proposes to require, as a condition for a HECM to be eligible for loan assignment, that the HECM mortgage be in lien status prior to homeowners association and condo association liens.
- Appraisal Requirements. This rule proposes to require the mortgagee to have the property appraised no later than 30 days after receipt of the request by an applicable party in connection with a potential property sale, and when a foreclosure sale is occurring, the appraisal must be performed within 30 days of the foreclosure sale.
- Limiting Reimbursement of Property Charge Advances. This rule proposes to limit insurance claim reimbursement to a mortgagee to two years of payments for: (a) taxes, ground rents, water rates, and utility charges that can result in liens prior to the mortgage; (b) special assessments, which are noted on the application for insurance or which become liens after the insurance of the mortgage; and (c) hazard insurance premiums on the mortgaged property not in excess of a reasonable rate. The rule also provides flexibility to allow the Commissioner to approve an extension of the two-year limit.
- Including Utilities as Property Charges. FHA proposes to amend the definition of “property charges” to include utilities as a borrower responsibility, when failure to pay such utilities would result in a lien and would potentially trigger a due and payable event.
- Acquisition and Sale of Property. This rule proposes to replace the requirement that the property be sold for at least 95 percent of the appraised value with a more flexible provision which allows the Commissioner to lower this amount as necessary to adapt to market conditions and other factors. This rule also proposes to require that the closing costs from the sale be no more than 11 percent of the sales price.
- Cash for Keys. This rule proposes to incentivize parties with legal authority to dispose of a property that serves as the security for a HECM to complete a deed in lieu of foreclosure more quickly.
- Civil Money Penalties. Currently, HUD’s regulations at 24 CFR § 30.35, which provide HUD’s policy regarding taking civil money penalty action against mortgagees, do not include references to the requirements of FHA’s HECM program in 24 CFR § 206. In this rule, FHA proposes new amendments which would expand two provisions to include specific reference to the HECM regulations. First, in 24 CFR § 30.35(a)(8), this rule proposes to allow the Mortgagee Review Board (MRB) to initiate a civil money penalty action against a mortgagee who knowingly and materially fails to timely submit documents that are complete and accurate in connection with a claim for insurance benefits in accordance with 24 CFR § 206.127. Second, in 24 CFR § 30.35(a)(10), this rule proposes to allow the MRB to initiate a civil money penalty action against a mortgagee who knowingly and materially fails to service FHA mortgages in accordance with the requirements of 24 CFR § 206.
The public has 60 days to comment on HUD’s proposed rule. Interested persons can submit their comments by mail or electronically through the Federal eRulemaking Portal at http://www.regulations.gov/. The public comment period ends on July 18, 2016.
The full text of the proposed rule can be found at https://www.gpo.gov/fdsys/pkg/FR-2016-05-19/pdf/2016-11631.pdf.