FHA’s proposed HECM policy changes: What you need to know


Policy changes related to the Home Equity Conversion Mortgage can appear somewhat esoteric and perhaps overwhelming to the casual observer. Today we will break down some of the key proposed policy changes for the HECM that every reverse mortgage originator should understand and communicate with borrowers who may find themselves in these select situations.


Early this month the Federal Housing Administration released a draft mortgagee letter that outlines several proposed key policy changes for Home Equity Conversion Mortgages or HECM loans. The proposals are primarily focused on the servicing of HECM loans.


While not generally considered, the servicing of HECM loans is an integral element of an older homeowner being able to age in place. Today we will review some of the more notable proposed changes and what they may mean for your past HECM borrowers.


Occupancy Certification:

First is occupancy verification. Each year


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Dennis Silva November 13, 2023 at 6:29 pm

Cash for keys is a refreshing version of handling a painful departure. It was a common method during the Great Recession for many forward mortgage departees.

Shannon Hicks November 14, 2023 at 11:04 am

Well said, Dennis.

James E. Veale,, MBT November 19, 2023 at 10:55 am

Shannon, as usual, you make an excellent presentation on what the proposal covers.

Truly it is important that borrowers be protected against unnecessarily losing their homes in ways such as verifying home occupancy. Yet this proposal lacks meaningful protection against fraud. How will the servicer/mortgagee know that the person answering the phone is actually the borrower? While it can be argued that the present system is just as unreliable, one must question, why is improvement against fraud regarding borrower occupancy seemingly left out of this proposal. In 2022, an originator in California went door to door to see if HECM borrowers wanted to refinance their HECMs. To his surprise, he found a relatively high percentage of HECM collateral wholly occupied by renters.

Hopefully, cash for keys will have a positive impact om the MMIF. Yet it will have far less impact in the year of endorsement due not only to not knowing the percentage of those in the due and payable status who will participate in the upgraded proposal but also the impact will be based on a discounted cash flow (net present value) calculation that will not actually impact the program for up to four decades. It will have absolutely no impact on the MMIF to the extent that those who ultimately participate saw their HECMs endorsed before October 1, 2008 since such HECMs are accounted for in the General Insurance and Special Risk Insurance Fund (not the MMIF).

Shannon Hicks November 20, 2023 at 6:41 am

Thank you, Jim.


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