May 29, 2015
The FHA and HUD have been making a number of revisions to the FHA Home Equity Conversion Mortgage program (FHA HECM) including changing the nature of payouts based on the type of HECM loan (adjustable rate or fixed rate) and many other alterations.
One of the most recent changes is how the FHA expects participating lenders to deal with unpaid property taxes on an FHA HECM, which technically can result in the loan being declared due and payable. Some lenders and borrowers go into a HECM loan with an arrangement to have a set-aside account created specifically for the purpose of paying property taxes to avoid problems later down the line.
But what happens if a HECM borrower lets that set-aside account lapse? When the property taxes begin to go unpaid, FHA loan rules now have a specific course of actions participating lenders must take in these cases:
“For HECM loans with set-aside accounts for the purpose of paying property charges, the mortgage will be considered in default if:
–The set-aside account has been exhausted of available funds to make property charge payments; and
–The mortgagor, after being notified of their outstanding property charge obligation, fails to remit the property charge payment in full within 30 days as required; and
–The Principal Limit has been exhausted, requiring the mortgagee to make the property charge payment using corporate funds.”
FHA loan rules add, “Except during a Deferral Period, mortgagees must submit to HUD a Due and Payable Request, within 30 days, whenever a mortgage becomes eligible to be called due and payable because an obligation of the mortgage is not met.”
This information is found in FHA/HUD Mortgagee Letter 2015-11. Unpaid property taxes aren’t the only thing that can bring a HECM loan due and payable–borrowers who stop using the property as their primary residence or who otherwise violate the terms of the HECM loan agreement may also find themselves at risk of receiving a due and payable notice. What happens when this occurs? According to the mortgagee letter:
“Mortgagees must inform mortgagors in writing that they have thirty (30) days to respond to a Due and Payable Notice. All Due and Payable Notices sent to mortgagors must reference available loss mitigation options, if any, and inform the mortgagor of his/her ability to sell his/her property or execute a Deed-in-Lieu of foreclosure.”
Do you have questions about FHA refinance loans? Ask us in the comments section.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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