The Federal Housing Administration (FHA) on Wednesday published Mortgagee Letter (ML) 2024-18, which implements updates to debenture interest rates and reimbursements for Home Equity Conversion Mortgage (HECM) program claims proposed in July. The ML goes into effect on Sept. 28.
Debenture interest refers to the percentage of a return that an investor would receive for lending money through a debenture. The updated rule builds upon several changes that FHA made to the HECM program on Jan. 19, 2017, which went into effect later that year.
“This ML updates the debenture interest rate used for the payment of debenture interest for HECM claims and establishes a process for adjusting debenture interest for claims already filed on HECMs that became due and payable on or after Sept. 19, 2017,” FHA said in its announcement.
There are three core provisions in the ML, including a modification of HECM insurance regulations “by defining the date of default as the date for determining the debenture interest rate on loans that become due and payable” after publication of the ML. The rule also reaffirms the interest rate used for the payment of debenture interest for HECM claims to align with the January 2017 rule.
The ML also adds a new debenture interest rates section to the Single Family Housing 4000.1 Handbook, and it “establishes a Debenture Interest Rate Adjustment (DIRA) process so HECM holders, or their authorized representative, can request an adjustment to the debenture interest rate used to calculate payments for claims filed on HECMs that became due and payable on or after September 19, 2017, and filed prior to September 28, 2024.”
This DIRA process will go into effect on Jan. 2, 2025, and will be available through July 1, 2025. As an attachment to the new ML, the U.S. Department of Housing and Urban Development (HUD) added a DIRA request template that can be used for such submissions.
“HUD encourages all HECM holders to thoroughly analyze their portfolio to determine which HECM claims they are legally entitled to include in a DIRA submission, as only one DIRA and one corrective DIRA will be accepted by HUD,” the announcement explained.
As in the proposed rule, the final ML also includes certain changes made in January 2024 to the Home Equity Reverse Mortgage Information Technology (HERMIT) system. The FHA has since determined that these changes have created a “financial hardship to mortgagees that hold a substantial number of loans that were already in default at that time,” according to the ML.
That change made it so that the debenture interest rates for all HECM claims filed from January 2024 onward, and paid in cash, would be “paid at the rate in effect as of the month the mortgage became due and payable.”
“FHA has since identified that system changes did not align with regulations that require the debenture interest to be calculated based on the monthly average yield, for the month in which the default on the mortgage occurred” on Treasury securities adjusted to the 10-year Constant Maturity Treasury (CMT) rate.
HERMIT was launched by HUD in October 2012 after a protracted development cycle. Its creation aimed to improve the processes associated with the endorsement of HECMs, as well as the processing of servicing and claims within HUD.
