FHA seeks to bridge a gap in reverse mortgage policy

The Federal Housing Administration has issued new rules that aim to resolve some problems recently discovered in policy that affect the servicing of certain home loans taken out by older adults.The new Department of Housing and Urban Development directives reconcile calculations for cash claim reimbursements that were part of a finalized 2017 rule instituted during the Trump administration but were never fully implemented until a 2024 systems update included them.The move is intended to head off an adverse impact from what otherwise would have been a sudden change to a debenture rate based on dates where loans were due-and-payable from older methods based on commitment or endorsement dates.Because reconciling the incomplete rule change with the system upgrade in one fell swoop was found to be “a financial hardship to mortgagees that hold a substantial number of loans that were already in default at that time,” HUD decided to allow for interim adjustments to it.The new rules allow HECMs due and payable before Sept. 19, 2017 to receive cash claims reimbursement based either the commitment or endorsement date, whichever produces a higher amount.Reverse mortgages due and payable after that time but before Sept. 28, 2024 will receive cash reimbursement based on the highest output from any of the historic or new methods.HECMs with subsequent due-and-payable dates will have to use the method that was supposed to have been established back in 2017. Specifically, the debenture rate will be based using the date a default occurs and the loan becomes due and payable to determine the monthly average yield for U.S. Treasuries adjusted for a constant maturity of 10 years.Reverse mortgage servicers who want to file for adjustments to applicable claims already paid on loans due and payable between Sept. 19, 2017 and Sept. 28 of this year can do so.Servicers that want to file for an debenture interest-rate adjustment must do this between Jan. 2 and July 1 of next year by emailing answers@hud.gov and writing “DIRA Request” in the subject line.They must include their FHA mortgagee identification and a statement certifying entitlement to the adjustment. The email also has to contain the name, phone number and email address for a specific contact who will handle the matter.HUD provides specific wording for the certification in its mortgagee letter laying out the new rules. It also indicates there are limits on the number and timing of DIRAs that can be filed and explains an appeals process that is available.There can only be one initial and one corrective DIRA filed for each mortgagee identified, and the latter must be filed within 30 days of the original request.Designated contacts can send emails with “DIRA Appeal” in the subject line to the aforementioned address within 60 days of decisions if they disagree, and should include documentation explaining why they believe calculations and amounts are incorrect.The update is one of the ways the department has been responding to longtime industry concerns that the FHA’s complex rules for servicing claims reimbursement don’t always ensure adequacy in covering servicers’ costs.Other steps that entities in the broader government-lending market have been taking to improve the economics of reverse mortgage servicing include a proposal that would create new market for Ginnie Mae loan buyouts. (Ginnie is an arm of HUD that guarantees loan securitizations.)Policymakers and regulators have been more attentive to the economics of the business since the bankruptcy of Reverse Mortgage Funding in 2022, which resulted from liquidity issues in the market. Ginnie seized servicing in that bankruptcy.