FHA Single Family Housing Policy Handbook 4000.1, Part III — o. Post-Endorsement HECM Amendments (04/29/2024)

FHA Single Family Housing Policy Handbook 4000.1, Part III — o. Post-Endorsement HECM Amendments (04/29/2024)

o. Post-Endorsement HECM Amendments (04/29/2024) i. Definition A Post-Endorsement HECM Amendment refers to a change to the HECM instruments, the nature of the obligation, or the security after the HECM has been insured. ii. Standard The Mortgagee must obtain HUD’s approval by submitting the required documents through the HERMIT System for all post-endorsement HECM amendments prior to completion of the proposed change. iii. Required Documentation The Mortgagee must retain a copy of all supporting documents submitted to HUD and HUD’s approval or rejection of the amendment in the Servicing File. iv. Types of Amendments (A) Partial Release of Security (1) Definition Partial Release of Security refers to a request to release a portion of the land that secures the HECM. Reasons for a partial release of security may include: • condemnation; • eminent domain (order of taking); • lot line dispute or adjustment; or • sale of a portion of the land. III. SERVICING AND LOSS MITIGATION B. Title II Insured Housing Programs Reverse Mortgages 1. Servicing of FHA-Insured HECMs Handbook 4000.1 1467 Last Revised: 11/26/2025 (2) Request Process The Mortgagee must obtain HUD approval for any partial release of security. The Mortgagee must submit the following in HERMIT using the partial release of security request timeline: • a cover letter that includes: • Borrower’s name; • property address; • FHA case number of Borrower; • Maximum Claim Amount (MCA); • unpaid principal balance; • detailed reason for request, including how the land to be released will be used; and • Mortgagee’s reason for the recommendation to accept the Borrower’s request; • whether or not the HECM is in good standing; • the amount of the outstanding principal balance; • a complete legal description of the Property to be released; • a complete legal description of the Property to be retained; • the sales contract, if any, indicating monetary consideration to be received by the Borrower; • the amount of a prepayment, if any, to the HECM principal; • any restrictions to be imposed on the land to be released; • a survey or sketch of the Property showing: • the dimensions of the portion to be released and the portion to be retained; • the location of existing and proposed improvements; and • the relation of the Property to surrounding Properties; • plans and specifications, including Cost Estimates of any alterations proposed for the remaining Property after the release; • a valid FHA appraisal that reflects: • the value before the partial release of security; and • the value of the remaining Property after the partial release of security; • any applicable notice of taking through eminent domain; • copies of the first and any applicable second HECM; • copies of the prepared partial releases for the first and any applicable second HECM; and • any other supporting documentation the Mortgagee may deem appropriate. (3) HUD Review HUD will process the request for the partial release of security and notify the Mortgagee of the approval or rejection in HERMIT. If the request is approved, III. SERVICING AND LOSS MITIGATION B. Title II Insured Housing Programs Reverse Mortgages 1. Servicing of FHA-Insured HECMs Handbook 4000.1 1468 Last Revised: 11/26/2025 HUD will execute the partial release of security document, upload a copy into HERMIT, and mail the original to the Mortgagee for recording. (B) Substitution of Collateral (1) Definition A Substitution of Collateral refers to the substitution of security for the purpose of removing the dwelling to a new lot or replacing the dwelling with a similar or like kind on the existing lot under the following conditions: • the Mortgagee obtains a good and valid first lien on the Property to which the dwelling is removed or the existing lot upon which the dwelling is rebuilt; • all damages to the structure are repaired or all rebuilding of the structure is completed without cost to FHA; and • the Property to which the dwelling is removed or rebuilt is in an area known to be reasonably free from natural hazards or, if in a flood zone, the Borrower will insure or reinsure under the National Flood Insurance Program (NFIP). (2) Request Process The Mortgagee, working with the Borrower and the insurance adjuster’s report, must determine the extent of the damage. When it has been determined that substitution of a new dwelling is required, the Mortgagee must obtain HUD’s approval prior to completion of construction. The Mortgagee must ensure the new dwelling: • is comparable in value to the original dwelling; • will support the original mortgage amounts; and • will meet FHA’s MPS. The Mortgagee must submit a substitution of collateral request to HUD for review and approval via HERMIT with a cover letter that includes: • Borrower’s name; • property address; • FHA case number of Borrower; • MCA; • unpaid principal balance; • detailed reason for request; and • Mortgagee’s reason for the recommendation to accept the Borrower’s request. The Mortgagee must also submit the following documentation, which may vary based on the nature and degree of the damage: • the origination appraisal; III. SERVICING AND LOSS MITIGATION B. Title II Insured Housing Programs Reverse Mortgages 1. Servicing of FHA-Insured HECMs Handbook 4000.1 1469 Last Revised: 11/26/2025 • an appraisal of the site with proposed improvements subject to completion per plans and specifications; • verification the Borrower has sufficient construction funds to complete the project; • the Hazard Insurance Claim Report and insurance payment information; • a scheduled completion date for the entire project; • an elevation survey, if required by local regulations; and • evidence of compliance with any state or local building requirements. The Mortgagee may, without the prior consent of the Commissioner, accept an addition to, or substitution of, the security for the purpose of removing the dwelling to a new lot under the following conditions: • the dwelling has survived an earthquake or other disaster with little damage, but continued location on the Property might be hazardous; • the Mortgagee obtains a good first lien on the Property to which the dwelling is removed or the existing lot upon which the dwelling is rebuilt; • all damages to the structure are repaired or all rebuilding of the structure is completed without cost to FHA; • the Property to which the dwelling is removed or rebuilt is in an area known to be reasonably free from natural hazards or, if in a flood zone, the Borrower will insure or reinsure under the NFIP; and • immediately following the emergency removal, the Mortgagee notifies FHA through the HERMIT System of the reasons for removal. The Mortgagee must monitor the progress of the project and ensure it is completed by the scheduled date. (3) HUD Review HUD will process the request for substitution of collateral and notify the Mortgagee of the approval or rejection by email. In addition, HUD will upload all related documentation received in HERMIT. HUD’s appraisal review may have recommendations that must be met prior to the approval of the substitution of collateral. These recommendations, which will be stated in HUD’s response to the request, may include: • that the old structure is demolished and/or removed from the site; and • a final inspection of the completed project be provided. (C) Consent of Lienholder (1) Definition Consent of Lienholder refers to the approval of all lienholders to allow for an Easement on the Property that does not diminish the appraised value of the land secured by the HECM. If land is taken, the owner should be compensated and a partial release should be done. Easements may be for: III. SERVICING AND LOSS MITIGATION B. Title II Insured Housing Programs Reverse Mortgages 1. Servicing of FHA-Insured HECMs Handbook 4000.1 1470 Last Revised: 11/26/2025 • aviation or avigation; • oil and gas leases; • driveways; • subdivision consent; • consent to change in covenants and restrictions; or • municipalities to allow for drainage or access where no actual land is taken. (2) Request Process The Mortgagee must submit a request in HERMIT using the consent of lienholder timeline, providing the following documentation: • a cover letter that includes: • Borrower’s name; • property address; • FHA case number of Borrower; • MCA; • unpaid principal balance; and • detailed reason for request; • a copy of the origination appraisal; • a copy of the oil and gas lease contract, proposed easement, or other written agreement; • copies of the recorded first and any applicable second HECM security instrument which includes the legal description; • survey or plot plan showing proposed Easement, if applicable; and • documents for which approval and signature is requested for first and any applicable second HECMs. (3) HUD Review HUD will process the request for the consent of lienholder and notify the Mortgagee of the approval or rejection in HERMIT. If the request is approved, HUD will execute the consent of lienholder document, upload a copy into HERMIT, and mail the original to the Mortgagee for recording. (D) Subordination Agreement (1) Definition Subordination Agreement refers to an action necessary to correct the recordation order when the second HECM has been inadvertently recorded before the first. Recording a Subordination Agreement for the second HECM must result in the Mortgagee’s HECM lien being a first mortgage lien. III. SERVICING AND LOSS MITIGATION B. Title II Insured Housing Programs Reverse Mortgages 1. Servicing of FHA-Insured HECMs Handbook 4000.1 1471 Last Revised: 11/26/2025 (2) Request Process The Mortgagee must submit a request for a Subordination Agreement in HERMIT using the Subordination timeline, providing the following documentation: • copies of the recorded first and second HECM; and • a prepared Subordination Agreement for HUD’s execution. (3) HUD Review HUD will process the subordination request and notify the Mortgagee of the approval or rejection in HERMIT. If the request is approved, HUD will execute the Subordination Agreement, upload a copy into HERMIT, and mail the original to the Mortgagee for recording.

Source: FHA Single Family Housing Policy Handbook 4000.1, Part III — o. Post-Endorsement HECM Amendments (04/29/2024) · source URL · snapshot 8c03836f77f317e1