HUD’s long-awaited changes to its Home Equity Conversion Mortgage (HECM) underwriting requirements looks like they are finally coming to fruition.
Due to an increasing number of tax and hazard insurance defaults by HECM mortgagors, HUD had drafted a rather comprehensive set of instructions and procedures for lenders to follow. They should be used when analyzing a prospective HECM Borrower’s financial capacity and willingness to comply with mortgage provisions.
When these requirements become effective, lenders will be required to complete a Financial Assessment of all prospective HECM Borrowers prior to loan approval in accordance with instructions contained in Mortgagee Letter 2014-22.
These new requirements were originally scheduled to be effective for HECM loan transactions that obtain their FHA case number on or after March 2, 2015. However, in an FHA News Update dated February 12, 2015 (FHA Info #15-14), it was stated that “due to a delay in delivery of certain system enhancements required to support the policies published in Mortgagee Letters 2014-21 and 2014-22” the implementation date will be delayed.
The new effective date will be for all FHA case number assignments issued on or after April 27, 2015. That should provide active HECM lenders a little more time to fully digest and implement the new Financial Assessment criteria in determining if prospective HECM borrowers will qualify for this type of financing.
Let’s hope these changes will result in fewer claims for FHA as this program is needed for a stay-in-place option for many senior homeowners.