Proposed HUD Rule Presents Financial Consequences For Borrowers And Lenders
With just a few days remaining in its fiscal year, the Department of Housing and Urban Development (HUD) has not yet acted on a proposed rule requiring reverse mortgage lenders to assign loans to HUD. Industry leaders say the proposed rule would have consequences for both borrowers and lenders.
For lenders, the proposed change in loan assignment could result in loss of principle payments when maximum claim amounts reach 98 percent or more. The National Reverse Mortgage Lenders Association (NRMLA) said lenders already assume a financial burden when they take on Home Equity Conversion Mortgage (HECM) repurchases. Under current HUD policy, NRMLA said lenders act to assign HECM repurchases to HUD as quickly as possible due to the costs; however, circumstances such as default or loans that are due and payable may delay assignment to HUD. Lenders’ financial costs likely would increase due to the firm threshold for assignment.
Borrowers also could face unintended consequences under HUD’s proposed rule if their loans are in default. Lenders might not have time to pursue loss mitigation efforts under HUD’s proposed assignment threshold. Faced with the prospect of revenue loss, lenders may have to assign loans to HUD before loss mitigation can be carried out, which is harmful to borrowers.
Under a compromise suggested by the Mortgage Bankers of America (MBA), HUD could create a brief “assignment window” that would allow lenders to evaluate their options for loans that have reached the MCA threshold but can’t be assigned to HUD.
Reverse Mortgage Daily’s article, HUD Proposed Rule Would Bring ‘Catastrophic Losses’ to Reverse Mortgages, gives the details about the proposed assignment rule and the industry’s efforts to oppose it.