Do collection accounts have to be paid off to be eligible for a HECM?

No, they do not have to be paid off, but if the collection account balances are $2,000 or greater, the mortgagee must verify that the mortgagor has made payment arrangements with the creditor or if there is no payment plan, calculate the monthly payment using 5% of the outstanding balance of each collection account and include the monthly payment in the expense analysis.

For additional information see Mortgagee Letter 2016-10 and the attached revised Financial Assessment and Property Charge Guide, Sections 2.17 and 3.90 available at

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-03804