The U.S. Department of Housing and Urban Development (HUD) has over 50 proposed rules in its section of the federal government’s 2023 spring regulatory agenda, which was released last week by the White House.
While the vast majority are focused on the forward mortgage business, two proposals apply to both the Home Equity Conversion Mortgage (HECM) program and the Federal Housing Administration (FHA).
Servicing and claim requirements
The first proposal focuses on the reform of servicing and claim requirements for FHA-insured mortgages.
The proposed rule would reduce the costs of servicing. The servicing cost increases that have occurred over the last decade for performing and non-performing mortgages can impact borrowers and servicers, who generally bear the burden in the form of higher mortgage fees.
“Reducing costs of servicing will ultimately benefit the public by providing a reduced cost of credit,” the proposed rule states. “Furthermore, FHA is working to protect communities by reducing unnecessary holding costs to HUD, limiting depreciation of the property value, and reducing neighborhood blight caused by properties that sit vacant for extended periods of time.”
The proposal is expected to improve HUD’s ability to manage the Mutual Mortgage Insurance (MMI) Fund, and to “[streamline] the system for mortgagee curtailment of interest and ensures it is applied equitably across all disposition methods.”
In addition, the proposed rule would limit reimbursement for property-related expenses to those “incurred within certain established timeframes for forward and Home Equity Conversion Mortgages.” It would also establish a deadline “that defines FHA’s liability for claim payments for insurance benefits.”
An initial notice of proposed rulemaking is expected to be published by December 2023, according to the Office of Information and Regulatory Affairs (OIRA) under the Office of Management and Budget (OMB).
Forward and reverse mortgage re-sales
The second proposed rule related to HECMs would revise HUD’s restrictions on re-sales for both forward and reverse mortgages “to provide greater latitude in determining the appropriate tools and documentation requirements based on the individual transaction risk,” according to its entry on the OIRA website.
“HUD’s regulations currently include time restrictions on re-sales of properties eligible to be secured by FHA-insured mortgage financing,” the proposal says. “If the re-sale date of the property is 90 days or less following the date of acquisition by the seller, the property is not eligible for a mortgage insured by FHA.”
Restricting or prohibiting the use of FHA mortgage insurance for a re-sale within 90 days of acquisition is outside the scope of risk management through technology in other parts of the market and also impacts affordable housing availability, the proposed rule states.
“In addition, HUD’s requirements for re-sales occurring between 90 and 180 days in all cases where re-sales exceed certain price change thresholds may result in unnecessary operational burden to industry participants,” the proposed rule notes.
HUD has demonstrated the ability to “successfully leverage new technology to manage property valuation and flipping risks,” the proposal states.
One example is the use of the collateral risk assessment and “targeted documentation requirements” used in the HECM program, with HUD seeking “to update its requirements in recognition of such experience.”
The initial notice of proposed rulemaking for this rule is expected in March 2024, according to the OIRA website.
