Reverse Mortgage Payment Options

The US Department of Housing and Urban Development (HUD) issued its first Mortgagee Letter of the Year on January 12, 2016, again delaying the application of the far-reaching changes related to Home Equity Conversion Mortgage (HECM) to beneficiaries in arrears due to non-payment of tax and insurances (collectively, "property fees") first notified in April 2015.

HUD published the Mortgage Creditor Letter 2015-11 on April 23, 2015, which sets out in detail guidelines and processes related to losses reduction options that can be provided by mortgage creditors who do not actually contribute real estate fees under the conditions of an HECM, better known as a reverse mortgage. Essentially, the Mortgage Creditor Letter 2015-11 allows reverse mortgageholders and service providers to assess debtors who are in arrears because they have not paid real estate costs for one of two harm reduction options: a redemption schedule where a debtor has up to five years to reimburse the outstanding real estate costs; and an "at risk" prolongation of HUD exclusion periods for debtors over 80 years with significant medical concern.

The Mortgage Letter 2015-11 stipulates that, if a Mortgagor does not exercise either of the two options, the Mortgagor must file an application with HUD to mature and pay the Term Loan and to enforce the title in accordance with the HUD Rules, usually six month after HUD has approved the application. The Mortgage Creditor Letter 2015-11 declared that it was immediately in arrears for HECMs due to unsettled real estate fees due on or after 23 April 2015.

Mortgage holders were obliged to put all Mortgage Creditors in their portfolio in arrears with unsettled land charge (but not with an outstanding redemption schedule) by 23 April 2015 in order to meet the new requirement by 20 October 2015 at the latest. The Mortgage Letter 2015-11 does not cover mortgages with redemption schedules that were in effect on April 23, 2015, unless the mortgage holder fails to make a payment under that schedule.

Any HECM that fails after 23 April 2015 must be reconciled by 20 October 2015. HUD issued the Mortgage Letter 2015-26 on October 16, 2015, which allowed mortgage holders to extend all the 2015-11 periods specified in Mortgage Holders until January 18, 2016. HUD released the Mortgagee Letter 2016-1 on January 12, 2016, which again prolonged all terms, this year until April 17, 2016.

While HUD has provided no justification for its decisions to prolong the application of its guidelines on interest on arrears until almost a year after their first announcement, there is evidence that HUD will announce significant policy changes to respond to the reverse mortgage industry's concern.

Certainly the most expected amendment would be for HUD to establish a de minimis level - a sum of real estate fees below which a mortgage creditor would not necessarily be obliged to enforce. Industrial operators should seek to obtain further guidelines from HUD just before the new transposition date of 17 April 2016.