Budget Increased for FHA Servicing Contracts



Here’s why the government is granting a $50 million dollar boost to FHA’s Mutual Mortage Insurance Fund

The White House budget submitted to Congress in June signaled a strong performance of the Home Equity Conversion Mortgage program. HUD’s summary of loan levels predicted the HECM portion of FHA’s portfolio was expected to generate a negative credit subsidy of -2.54% in Fiscal year 2022. Translated that means it’s expected that incoming receipts will exceed claims paid that year. According to a June report in Reverse Mortgage Daily fiscal year 2021 which we just concluded is also expected to generate a negative subsidy of -2.39%.

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While these short-term improvements in the HECM’s cash flow are a positive sign, the value of the HECM portion of FHA’s MMI fund is the source of continued concern. Case in point, the wild fluctuation of the HECM program’s standalone capital ratios. While the capital ratio of traditional FHA loans climbed steadily in the years 2016-2020, the HECM portion varied widely each fiscal year from a negative ratio of 11.81% in 2016, 18.3% in 2017, 18.83 in 2019, 9.22% in 2019, and .78% in 2020. Those numbers are highly sensitive to home price values and interest rates- both of which the housing agencies have no control. That means should home values slip the program’s valuation could easily go back into the red quickly.

One thing HUD and FHA are striving to control the costs of is HECM servicing- the chief reason the Biden administration boosted FHA’s administrative contract budget by $50 million for the fiscal year 2022. In its budget review, HUD states, “The primary cause of the increase is the growing expense of servicing the Secretary-held HECM portfolio.” A portfolio the agency says is growing while being challenged with Covid-19 and natural disaster claims.

The servicing of HECM loans has long been an area of concern and dispute among industry participants. One of the challenges is that HECMs are not assigned to FHA’s service contractor until the loan balance reaches 98%. Another sticking point is the question of how efficiently FHA’s HECM loan servicer is dealing with property vacancies and the sale of homes to recoup expenses.

In July 2018 then FHA Commissioner Brian Montgomery in a media call pointed to a potential source of HECM losses. “We are digging deep in the portfolio to find out of the problem is on the front end or the back end. My sense is that it’s more on the back end in terms of the losses we are experiencing. Part of ‘triaging’ is [determining] why that is happening”, said Montgomery. Adding, “looking at the back end of the process, once the loans are assigned to HUD is the area we are focused on. I am not sure further [principal limit] cuts are going to fix that problem.”

Proposals to fix the ‘back-end problems’ ranged from contracting with a new servicer, expanding the Cash for Keys program to the HECM for exiting homeowners, and allowing existing servicers of HECMs not in assignment to continue servicing the loan after the loan balance reaches 98% of the original maximum claim amount.

While such reforms have not come to fruition, some anticipated a change of the loan servicer for HECM loans in assignment as FHA sought new contracts in late 2020. On October 5th HUD’s decision was announced. “NOVAD Management Consulting (NOVAD) will remain responsible for servicing Assigned Secretary-Held Home Equity Conversion Mortgages (HECM) and HECM Subordinate Mortgages,” said HUD in a statement. Novad has served as FHA’s HECM servicer since 2014. While some argued for a new servicer to address increasing expenses, others like the former HUD Deputy Secretary of HUD Brian Montgomery argued keeping the existing servicer may ultimately reduce costs for the program.

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“One of the biggest drivers of losses in the HECM”

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This article was originally published in July 2019 yet the vexing issue of HECM servicing remains

The Urban Institute calls for loan servicing reform

Despite the good news last month that the backlog of HECM assignments has been cleared, significant problems remain according to the Urban Institute. “Rather than continuing to narrow eligibility—and decreasing participation further—the FHA should focus on reducing costs. Addressing losses on assigned loans would be the best step in that direction. This servicing issue is one of the biggest drivers of losses in the HECM program.”  So begins the Urban Institute’s recent blog post on how FHA could more effectively stem the tide of continuing HECM claims against its insurance fund.

Much like a broken pipe dramatically reduces the reach of other sprinklers in the system, HECM borrower participation, and overall loan volume have been decimated in the wake of several cutbacks to the program in efforts to stem continued losses. The trick is finding where the leak is.  Evidently, numerous reductions to the amount of money loaned (PLF factors), the financial assessment, and first-year distribution restrictions have not had their anticipated effect as projected losses continue according to HUD’s annual actuarial reports.
All which leads us to the question where’s the proverbial leak? Nearly one year ago FHA Commissioner Brian Montgomery said of HECM losses, “My sense is that it’s more on the back end in terms of the losses we are experiencing. Part of ‘triaging’ is [determining] why that is happening.”

The Senate Appropriations Committee seems to agree to instruct HUD to improve its resolution of defaulted and foreclosed FHA Home Equity Conversion Mortgage loans which have been assigned to HUD. Today 60 percent of HECM loans are not assigned to the agency. This is often due to tax delinquencies, pending foreclosures, or bankruptcies. Of the 40% of loans ultimately assigned to HUD 42% incur losses or result in an insurance claim, while only 12% for loans still with the loan servicer result in a loss. Consequently, the Urban Institute recommends that FHA’s policies be changed to allow the current servicer to manage the loan even after the loan is assigned.

HUD’s losses may be higher because they are required to pay future delinquent property taxes after the loan has been assigned. However, before a loan servicer can assign the loan property taxes must be current. In some cases, the servicer may choose to pay the current outstanding taxes anticipating future delinquencies and assign the loan at that time.

For most HECM professionals loan servicing goes largely unnoticed. However, the importance of effective and efficient loan servicing cannot be overstated when it comes to verification of tax payments, borrower occupancy, and property maintenance. There have been numerous anecdotal reports of HECM properties no longer being occupied by renters or family members long after the borrower has moved or passed away. In other instances, properties are not effectively supervised and become dilapidated decreasing the value of the loan’s underlying security- the home.

Contrary to the Congressional Budget Office’s recent recommendation to assign loans much earlier at 80% of the maximum claim amount versus 98%, the Urban Institute points to a potential source of a significant number of HECM insurance claims. Would this approach fix the leak and once again place the HECM closer in reach for those who could benefit?

Urban’s blog post concludes stating, “If the FHA were to allow existing servicers to retain the servicing for the rest of the life of the loan, it would stem these unnecessary losses. This is critical to the future viability of this valuable program for seniors.”

USA Today: Heirs left with heartache



ePath 100K RM leads

Heirs attempting to payoff reverse mortgages face hurdles or accelerated foreclosures

Losing a parent is truly a heart-wrenching experience. One that many of you our viewers, and myself have endured. Compounding the grief is the frustration in settling the financial affairs of your loved one. According to a recent column in USA Today last week, some reverse mortgage heirs are finding themselves thwarted in their attempts to purchase their parents home facing conflicting notices, bureaucratic red tape, and foreclosure- even when the family has the means to pay off the loan. Each delay driving up the ultimate loan balance payoff.

Servicing issues are not a new phenomenon. On this show, we have reported on some of the challenges of loans serviced by HUD’s chosen contractors…

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“One of the biggest drivers of losses in the HECM”

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The Urban Institute calls for loan servicing reform

Despite the good news last month that the backlog of HECM assignments has been cleared, significant problems remain according to the Urban Institute. “Rather than continuing to narrow eligibility—and decreasing participation further—the FHA should focus on reducing costs. Addressing losses on assigned loans would be the best step in that direction. This servicing issue is one of the biggest drivers of losses in the HECM program.”  So begins the Urban Institute’s recent blog post on how FHA could more effectively stem the tide of continuing HECM claims against its insurance fund.

Much like a broken pipe dramatically reduces the reach of other sprinklers in the system, HECM borrower participation, and overall loan volume have been decimated in the wake of several cutbacks to the program in efforts to stem continued losses. The trick is finding where the leak is.  Evidently, numerous reductions to the amount of money loaned (PLF factors), the financial assessment, and first-year distribution restrictions have not had their anticipated effect as projected losses continue according to HUD’s annual actuarial reports.
All which leads us to the question where’s the proverbial leak? Nearly one year ago FHA Commissioner Brian Montgomery said of HECM losses, “My sense is that it’s more on the back end in terms of the losses we are experiencing. Part of ‘triaging’ is [determining] why that is happening.”

The Senate Appropriations Committee seems to agree to instruct HUD to improve its resolution of defaulted and foreclosed FHA Home Equity Conversion Mortgage loans that have been assigned to HUD. Today 60 percent of HECM loans are not assigned to the agency. This is often due to tax delinquencies, pending foreclosures, or bankruptcies. Of the 40% of loans ultimately assigned to HUD 42% incur losses or result in an insurance claim, while only 12% for loans still with the loan servicer result in a loss. Consequently, the Urban Institute recommends that FHA’s policies be changed to allow the current servicer to manage the loan even after the loan is assigned.

HUD’s losses may be higher because they are required to pay future delinquent property taxes after the loan has been assigned. However, before a loan servicer can assign the loan property taxes must be current. In some cases, the servicer may pay the current outstanding taxes anticipating future delinquencies, and assign the loan at that time.

For most HECM professionals loan servicing goes largely unnoticed. However, the importance of effective and efficient loan servicing cannot be overstated when it comes to the verification of tax payments, borrower occupancy, and property maintenance. There have been numerous anecdotal reports of HECM properties no longer being occupied by renters or family members long after the borrower has moved or passed away. In other instances, properties are not effectively supervised and become dilapidated decreasing the value of the loan’s underlying security- the home.

Contrary to the Congressional Budget Office’s recent recommendation to assign loans much earlier at 80% of the maximum claim amount versus 98%, the Urban Institute points to a potential source of a significant number of HECM insurance claims. Would this approach fix the leak and once again place the HECM closer in reach for those who could benefit?

Urban’s blog post concludes by stating, “If the FHA were to allow existing servicers to retain the servicing for the rest of the life of the loan, it would stem these unnecessary losses. This is critical to the future viability of this valuable program for seniors.”

HECM Borrowers Receive Bankruptcy Notice

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HECM borrowers with loans serviced by RMS have questions after receiving bankruptcy notices from Ditech

The financial woes of Ditech have been documented in recent months. The parent company of RMS (Reverse Mortgage Solutions) is sending out required notices of Ditech’s bankruptcy proceedings which have triggered concerns for many borrowers.

We received the following contribution from Tim Linger HECM Senior Home Financing which spells out what borrowers with loans serviced by RMS need to know.

Submitted by Tim Linger


Borrowers with HECM loans serviced by Reverse Mortgage Solutions (RMS) are receiving letters indicating the bankruptcy filing of Ditech, a parent company of RMS. As you can imagine, borrowers are concerned.

HECM loan servicing is an important part of the overall HECM process. Reverse mortgage loans stay in this final stage of servicing for the majority of their existence. The other loan stages such as origination, processing, underwriting, closing, and funding, are rather brief in comparison to the servicing period.

The originating broker or initial lender may or may not be the servicer of the HECM loan. In all likelihood, the loan’s servicing rights may be transferred between servicers during the life of the loan and perhaps, even assigned to HUD’s contract servicer before the loan is ultimately terminated.

The servicing company is important to the borrower(s) because their servicer is the central point of contact when questions arise about their loan.

What happens when the servicer ceases operations or no longer services the HECM per the original loan contract? The answer is, per HUD’s guarantee, even though the loan servicer may change, the terms of the HECM remain the same.

You see, the rules of reverse mortgages are determined by the written promises made by the lender to the borrower(s) in the legal closing documents (Note, Deed of Trust and Security Agreement) that the borrower(s) signed at the closing of the HECM.

Regardless of who services the HECM, the borrower(s) can only require those specific items agreed upon in the initial legal documents signed at closing. FHA insures the HECM and therefore, guarantees that no matter may happen to the Servicer, the borrower(s) continues to have a safe and valid contract.

The two common questions from Borrower(s) are: ‘is my HECM safe and, ‘what do I need to do?

First, don’t panic. The purpose of FHA’s Mortgage Insurance Premium (MIP) should give all Borrower(s) full faith that the full faith of the federal government (FHA / HUD), is backing the HECM program and the terms of the loan. The servicer is ultimately communicating what FHA has promised and their guarantees are solid – as solid as the federal government. Yes, the HECM is safe.

Second; What do I need to do?  Nothing, unless the borrower(s) feel they have a claim to file. Rest assured that FHA is on the case! HUD guarantees that the loan will be serviced properly, or that the servicing rights would be transferred to another servicing company. Monthly statements, loan proceeds, lines of credit, additional fees, and all terms of the contract will not be affected or changed by any entity, including RMS or it’s parent company’s (Ditech) bankruptcy filing. Sit tight and relax, everything is going to be alright.

Written by Tim Linger, CHS, CRMP, CSA, President of the HECM Association

Tim Linger is a Certified HECM Specialist, Certified Reverse Mortgage Professional, Certified Senior Advisor, and the President of the HECM Association – a 501(c)3 non-profit trade association. Tim has nearly 20 years exclusively in the reverse mortgage arena and prides himself on knowing the HECM thoroughly. Tim is based in Orlando Florida and is the owner of HECM Senior Home Financing Inc. His brokerage focuses on the HECM for Home Purchase. Tim can be reached at TimLinger@HECMsenior.com or direct at 321-356-9229