HUD Proposes Mandatory Assignment of HECMsAs part of a broader push to update its regulations regarding Home Equity Conversion Mortgages (HECMs, more commonly known as reverse mortgages), the Department of Housing and Urban Development (HUD) published a Supplemental Notice of Proposed Rulemaking on August 11, 2016. HUD is seeking comments on a regulatory change that would require mortgagees to assign HECMs to HUD once the loan balance is equal to or greater than 98 percent of the HECM’s Maximum Claim Amount.

Under HUD’s existing regulations, mortgagees are permitted to assign the HECMs to HUD once the loan balance reaches this threshold, but are not required to do so. HUD’s explanation for this policy change stems from a comment it received in response to the broader proposed rules it published in May. One commentator noted that, in some cases, a mortgagee may decline to assign the HECM if the underlying property value has risen rapidly and the loan has an above-market rate. Accordingly, the commentator concluded that mortgagees “can choose to keep the best loans and make claims for the worst ones.”

While it is unclear whether the issue posed by the commentator is merely academic or actually bears itself out in the industry, HUD appears to agree with his proposed solution requiring mortgagees to assign HECMs once the loan balance reaches 98 percent of the Maximum Claim Amount. Mortgagees seeking to comment on this proposed change must do so before September 12, 2016.

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Photo of James W. Wright Jr. James W. Wright Jr.

Jay Wright is a partner in the firm’s Banking and Financial Services and Litigation practice groups. Jay has earned his Accredited Mortgage Professional (AMP) designation through the Mortgage Bankers Association (MBA), and is one of a small number of lawyers who have achieved…

Jay Wright is a partner in the firm’s Banking and Financial Services and Litigation practice groups. Jay has earned his Accredited Mortgage Professional (AMP) designation through the Mortgage Bankers Association (MBA), and is one of a small number of lawyers who have achieved this status.

Jay’s practice focuses on financial services litigation and regulation, and he is actively involved in lawsuits and disputes across the country representing companies involved in a wide array of state and federal law claims. His representation includes general defense of various claims against financial institutions, mortgage companies, and other commercial entities. Many of these claims involve allegations of wrongful foreclosure proceedings or violations of the Truth in Lending Act (TILA), the Real Estate Settlement Procedures Act (RESPA), and Federal Housing Administration (FHA) regulations, as well as various deceptive trade practices claims under state law.