2022 UPDATE: FHA Clarifies COVID-Relief Options for Borrowers
The Federal Housing Administration published a technical update to Mortgagee Letter 2021-15 that will provide additional time for borrowers economically impacted by the COVID-19 pandemic to seek relief.
Details were provided this week in Mortgagee Letter (ML) 2022-02.
ML 2022-02 clarifies that the first legal deadline and Reasonable Diligence Time Frame are extended by 180 days from the later of either:
- the expiration of the foreclosure moratorium for FHA-insured Single Family Mortgages; or
- the expiration of the borrower’s COVID-19 forbearance or Home Equity Conversion Mortgage COVID-19 extension period.
“NRMLA applauds the issuance of ML 2022-02. This clarifying guidance is a win/win for HECM borrowers and for our HECM Servicer Members,” says NRMLA President Steve Irwin. “This guidance provides full access to the available due and payable timelines for HECM borrowers who may need additional time to resolve property charge delinquencies, and clearly defines the due diligence timelines for Servicers. NRMLA had been communicating with HUD on the need for such clarifications, and we are delighted to see these clarifications through this ML.”
2021 COVID UPDATE:
You may opt for your appraisal to be completed by an exterior only inspection until February 28, 2021.
The outbreak of the COVID-19 coronavirus in the United States has universally disrupted the regular, daily lives of Americans as well as the nation’s economy.
As the risk of infection and the possibility of hospitalization, particularly for older Americans, has led to orders from federal, state and local governments that encourage “social distancing” in an effort to slow the spread of the virus, people are changing the way they operate.
The reverse mortgage market, too, has experienced some changes as a result.
This article will cover some of the areas of reverse mortgage impact and what to expect if you are thinking about getting a reverse mortgage in today’s market, including:
- Interest rates
- Loan closings and document signing
- Appraisal activity
The bottom line is that reverse mortgages are still widely available and for some people may be an even more viable option today than in recent months
COVID-19 and the reverse mortgage market
The reverse mortgage industry has not been exempt from the effects of the coronavirus outbreak, which was officially declared a pandemic by the World Health Organization (WHO) on March 11.
Because of the more consultative nature of reverse mortgage products, along with the fact that they serve a population that is being hardest hit by the effects of the disease that can result from infection of the virus, the reverse mortgage industry and the people who operate within it have had to re-examine how the business is conducted during the crisis while also effectively dealing with some of the new, economic consequences that have resulted from it.
Current interest rate environment
In early March just as the effects of the coronavirus were starting to become more pronounced in different regions of the world, the U.S. Federal Reserve took an extraordinary step in an attempt to contain the economic impact of the outbreak by slashing interest rates in the biggest single rate cut the central bank has ever made.
It made for the biggest one-time cut — half a percentage point — and the bank’s first emergency rate move since the most economically harmful period of the 2008 financial crisis, according to the New York Times.
“The virus and the measures that are being taken to contain it will surely weigh on economic activity, both here and abroad, for some time,” said Federal Reserve Chairman Jerome Powell at a news conference announcing the cut, while adding the Fed was “prepared to use our tools and act appropriately, depending on the flow of events.”
While the traditional mortgage industry is more insulated from the effects of a rate cut as instituted by the Fed, many reverse mortgages are adjustable rate products, which has the potential to affect the rates that reverse mortgage borrowers will see.
Lower rates typically lead to higher available reverse mortgage loan proceeds, so this may bode well for some borrowers in the short term.
Takeaway: Low rates can translate into greater borrower proceeds, meaning the low interest-rate environment can be a good time to examine reverse mortgage options. (Check today’s rates here)
Refinances, signing of documents
The rate environment has directly led to more interest in the possibility of refinancing existing reverse mortgages into lower rates, though taking that action will not universally result in more loan proceeds or a larger line of credit.
Still, refinances are usually driven by three different factors: higher property values, increased principal limits, and the availability of new loan products.
Of course, one of the other realities of any loan process is the face-to-face encounters that need to take place in terms of document signing and recording.
Most loan closings are still taking place in light of social distancing due in part to the availability of online resources to ensure documents are available, notaries are still at work, and loans can move forward as planned.
Takeaway: Closings are still taking place without too much delay; necessary parties will need to take precautions for any in-person interactions in areas where shelter-in-place orders have been made.
Exterior Only Appraisal Options
While there is heightened awareness of personal safety issues for everyone involved in the reverse mortgage process, appraisers responsible for establishing the value of homes that are being borrowed against are doing their best to come up with new and alternative ways to accomplish their work, a necessary component for moving forward with a reverse mortgage loan.
The Federal Housing Administration (FHA) announced in late March that because of the guidelines in place related to social distancing, reverse mortgages can qualify for “exterior-only” and “desktop-only” appraisals in some instances.
An “exterior-only” appraisal is exactly what it sounds like, where an appraiser makes a determination on the value of a home by examining only the outside of it.
A “desktop-only” appraisal means that a determination of value is made after an appraiser reviews materials at their desk, without making an in-person examination of either the exterior or the interior of the home in question.
Not all in-process reverse mortgages will qualify for these alternative appraisal methods, but the guidance from FHA suggests that most of them will qualify for either an exterior-only or a desktop-only appraisal, but few loans can qualify for both.
Traditional appraisals are still being assigned while appraiser vendors are doing their best to take any and all necessary precautions based on guidelines from local, state and federal authorities as well as the Centers of Disease Control and Prevention (CDC).
Some states’ shelter-in-place orders related to the spread of the virus have also established appraisers as “essential,” allowing their work to continue while other, less essential businesses are being forced to close.
Takeaway: An appraisal is still a necessary part of the reverse mortgage transaction and appraisers are still at work to complete the process in as timely a manner as possible, and alternative appraisal methods are in place which will help in progressing more loans to close.
Reverse mortgages in times of market downturn
While you may have thought about a reverse mortgage in the past, today the idea may be even more timely.
With many retirement portfolios having suffered fast and severe declines in the short term, tapping into home equity can serve as a buffer against these market swings.