FHA Modifies Regulations For Faster HECM Processing

Mortgage News May 26, 2023

The FHA has released Mortgagee Letter 2023-10, introducing policies for quicker payment of funds to mortgagees when they transfer a Home Equity Conversion Mortgage (HECM) to the Department of Housing and Urban Development (HUD). The updated regulations allow FHA mortgage holders to request Preliminary Title Approval earlier and with fewer documents, reducing the time between loan eligibility for HUD assignment and claim fund payment to mortgagees.

When a Home Equity Conversion Mortgage (HECM) reaches 98% of its Maximum Claim Amount (MCA), the HECM program enables mortgagees to transfer the HECM to the U.S. HUD.

The Maximum Claim Amount (MCA) is utilized to determine the proceeds received and is calculated based on whichever is lower between the FHA lending limit or the appraised value of the home. For instance, if the home is appraised at $300,000, the MCA will be $300,000. However, if the home value surpasses the FHA lending limit, the MCA will be set at the lending limit.

According to the FHA’s updated HECM policy, mortgagees can initiate the submission of necessary information and documentation to HUD once the Home Equity Conversion Mortgage (HECM) reaches 97% of the Maximum Claim Amount (MCA), which is determined by the property value at the time the HECM loan is originated.

Previously, mortgagees could only provide necessary information and documentation for a HECM when it reached 97.5% of the Maximum Claim Amount (MCA). The new FHA policy permits mortgagees to submit original notes and mortgages after claim payment, reducing the time between reaching 98% of MCA and receiving payment.

In the fourth quarter of 2022, homeowners aged 62 and older experienced a slight decrease in their housing wealth, which reached an adjusted level of $12.39 trillion. The NRMLA/RiskSpan Reverse Mortgage Market Index (RMMI) also dropped slightly from 434.32 to 433.25, marking the first decline since 2011. This decline was influenced by a modest decrease in senior home equity from $12.42 trillion in Q3 2022 to $12.39 trillion in Q4 2022.

The decrease in equity can be attributed to a $30 billion rise in senior home debt, while home values remained relatively stable, reflecting the ongoing slowdown in the housing market.

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