On January 12, 2016, the U.S. Department of Housing and Urban Development (HUD) published its first Mortgagee Letter of the year, in which it again delayed the implementation of the sweeping changes related to Home Equity Conversion Mortgage (HECM) borrowers in default for failing to pay taxes and insurance (together, “property charges”) that it first announced in April 2015.
On April 23, 2015, HUD issued Mortgagee Letter 2015-11, which set forth detailed guidance on and procedures related to loss-mitigation options that mortgagees may provide mortgagors who fail to pay property charges in accordance with the terms of a HECM, more commonly known as a reverse mortgage. At its core, Mortgagee Letter 2015-11 allows reverse mortgagees and servicers to evaluate borrowers in default for failure to pay property charges for one of two loss mitigation options: a repayment plan, under which a borrower may have up to five years to repay the unpaid property charges; and an “At Risk” extension to HUD’s foreclosure timeframes for borrowers over age 80 with significant health concerns. If a borrower fails to qualify for either option, Mortgagee Letter 2015-11 requires a mortgagee to submit a request to HUD to call the loan due and payable and proceed to foreclosure of the underlying property in accordance with HUD guidelines, typically six months after HUD approves the request.
Mortgagee Letter 2015-11 stated that it was effective immediately for HECMs in default due to unpaid property charges occurring on or after April 23, 2015. Mortgagees were required to bring all HECMs in their portfolios in default for unpaid property charges (but not on an existing repayment plan) as of April 23, 2015, into compliance with the new requirements no later than October 20, 2015. Mortgagee Letter 2015-11 does not apply to loans with repayment plans that were current as of April 23, 2015, unless and until the mortgagor misses a payment under that plan. HECMs defaulting after April 23, 2015, must be brought into compliance by October 20, 2015.
On October 16, 2015, HUD published Mortgagee Letter 2015-26, which provided mortgagees an extension of all deadlines set forth in Mortgagee 2015-11 until January 18, 2016. On January 12, 2016, HUD published Mortgagee Letter 2016-1, which extended all the deadlines again, this time until April 17, 2016. Although HUD has not provided an explanation behind its decision to extend the implementation of its property charge default guidance until nearly one year after it was first announced, there is speculation that HUD will be announcing substantive changes to its policies in response to concerns expressed by the reverse mortgage industry. Certainly, the most anticipated change would be for HUD to set a “de minimus” threshold—an amount of property charges under which a mortgagee would not be automatically required to foreclose. Industry participants should look for additional guidance from HUD shortly before the new implementation deadline of April 17, 2016.