What are the Mortgagee responsibilities for a HECM Partially-Funded Life Expectancy Set-Aside?

When servicing Home Equity Conversion Mortgages (HECM) for which funds are distributed to the Borrower  from a Partially-Funded Life Expectancy Set-Aside, Mortgagees are responsible for ensuring that:
  • Life Expectancy Set-Aside funds are disbursed to the Borrower semi-annually;
  • The taxing authority and/or insurance carrier received the Borrower’s payment;
  • Life Expectancy Set-Aside funds are not held in an escrow account;
  • Payments disbursed to the Borrower for the payment of property charges are added to the mortgage balance when funds are disbursed by the Mortgagee; and
  • The Borrower is notified, in writing, within 15 calendar days of the annual analysis when remaining funds are exhausted or are not sufficient to make the next semi-annual disbursement to the Borrower and the Borrower will be responsible for using their own funds from other sources to pay future property charges. 
If there are no funds or insufficient funds remaining in the Set-Aside, the Mortgagee must:
  • Notify the Borrower, in writing, within 30 days of the Mortgagee receiving notification that a property charge payment is outstanding; 
  • Recommend the Borrower speak with a HUD-Approved Housing Counselor; and
  • Inform HUD within 30 days of the Mortgagee receiving notification that a property charge payment is outstanding.
 For more information see Mortgagee Letters 2014-21 and 2016-10 and the attached revised HECM Financial Assessment and Property Charge Guide available at https://www.hud.gov/program_offices/administration/hudclips/letters/mortgagee

All policy information contained in this knowledge base article is based upon the referenced HUD policy document. Any lending or insuring decisions should adhere to the specific information contained in that underlying policy document.


Topic Number: KA-02637