AWACSMortgage compliance intelligence from Flightline

FHA · Mortgagee Letter ML 2026-02 · Published

Requirements for Sale of Beneficial Interest and Declaration of Trust Submission

Mortgagees must obtain FHA approval of a Declaration of Trust prior to executing a sale of a beneficial interest in a group of mortgages. The submission must be made via LEAP and adhere to specific holder, servicer, transmittal, and documentation requirements.

Action requiredEffective Jan 31, 2026Checks passed· adjusted automaticallyRead the letter ↗ (opens in a new tab)

Loan impact

From the letter text · needs review

Applies to: Applies to all FHA-insured Title II Single Family forward and Home Equity Conversion Mortgage (HECM) loans involved in a sale of a beneficial interest in a group of mortgages.

Addressed to
All FHA-Approved Mortgagees
Investor
FHAFrom the publisher, not quoted from the text
Programs
FHAFrom the publisher, not quoted from the text
Affected areas
Contracts; TransferGuide Section I.A.11
Affected documents
Declaration of Trust
Effective
Jan 31, 2026
Applicability confidence
Needs review: some rows could not be matched to a quote from the source
Supporting quotes from the letter
  • affected areas“A Mortgagee’s Sale of a Beneficial Interest in a group of Mortgages, where the interest to be acquired is related to all of the Mortgages as an entirety, rather than an interest in a specific Mortgage, must be made only pursuant to a Declaration of Trust that has been approved by FHA prior to the sale.”
  • guide sections“adds Sale of a Beneficial Interest in a Group of Mortgages (I.A.11) with requirements for the Sale of a Beneficial Interest in a group of Mortgages as an entirety and submission of a Declaration of Trust.”
  • affected documents“The Mortgagee must submit a Declaration of Trust package to FHA for approval.”
  • affected documents“The Mortgagee must submit the final, unexecuted version of the Declaration of Trust (e.g., a Trust Agreement) to FHA for review.”

What changed

From the letter text · Sections I.A.11.b, I.A.11.c, I.A.11.c.ii, I.A.11.c.ii(A)(1), I.A.11.c.ii(A)(3), I.A.11.c.ii(B)
RequirementPreviouslyNow
FHA Approval of Declaration of Trust Prior to SaleNewRequiredSection I.A.11.bNew requirementA Mortgagee must receive FHA's approval of the Declaration of Trust for the Sale of a Beneficial Interest before proceeding with the sale.
Submission of Declaration of Trust Package via LEAPNewRequiredSection I.A.11.cNew requirementThe Mortgagee must submit a Declaration of Trust package to FHA for approval.
Submission of Final Unexecuted Declaration of TrustNewRequiredSection I.A.11.c.iiNew requirementThe Mortgagee must submit the final, unexecuted version of the Declaration of Trust to FHA for review.
Purchasing Mortgage Holder Maintenance of ApprovalNewRequiredSection I.A.11.c.ii(A)(1)New requirementThe Purchasing Mortgage Holder must maintain its FHA approval status at all times.
Transfer of Mortgages Upon Termination or Liquidation of Trust EntityNewRequiredSection I.A.11.c.ii(A)(3)New requirementIn the event the Declaration of Trust entity is terminated, dissolved, or otherwise liquidated, any remaining Mortgages must be transferred to an FHA-approved Mortgagee.
Notice of Mortgage Sale to HUDNewRequiredSection I.A.11.c.ii(B)New requirementThe Selling Mortgage Holder must notify HUD within 15 Days of the sale using the form required by FHA.
Sale of Beneficial Interest Compliance StandardsNewRequiredNot statedMortgagees must verify that beneficial interest sales only permit FHA-approved mortgagees to hold or purchase mortgages, require servicing or subservicing exclusively by FHA-approved servicing mortgagees, and ensure certificates convey no rights under FHA insurance contracts or interest in individual loans.

Also affected: Section I.A.11.

What to do

AWACS interpretation · not source language

What to review: Review the mandatory requirements to submit unexecuted Declaration of Trust packages to FHA via LEAP and secure approval prior to executing any sale of a beneficial interest no later than January 31, 2026.

Secondary

Submit the final unexecuted Declaration of Trust package to FHA for approval via LEAP and obtain approval prior to completing any sale of a beneficial interest no later than January 31, 2026.

Servicing

Ensure all mortgages subject to a beneficial interest sale are serviced or subserviced exclusively by an FHA-approved servicing mortgagee and report sales to HUD within 15 Days using the required form.

Compliance

Verify that purchasing mortgage holders maintain FHA approval at all times and that trust documentation requires remaining mortgages to be transferred to an FHA-approved mortgagee if the trust entity liquidates or terminates.

QC implications

  • Sample sales of beneficial interests to verify that FHA approval of the Declaration of Trust was obtained before the sale proceeded.
  • Review mortgage sale records to confirm that HUD was notified within 15 Days of the sale on the required form.
  • Test transactions to confirm that holders and servicers maintain required FHA approvals and that certificates grant no interest in individual mortgages or FHA insurance contracts.

Source and record

Version 1 · archived

Checks

  • Source verified: Passed

    The document ID, link and publication date match the official source.

  • Quotes match the source: Passed, adjusted automatically

    Every quoted passage appears word for word in the official document.

    • A detail the source does not support was removed or adjusted

  • Requirements backed by the source: Passed, adjusted automatically

    Anything marked required is backed by the requirement language and dates in the source.

    • A detail the source does not support was removed or adjusted
    • An independent check could not confirm a requirement; it is shown as review, not action

  • In scope: Passed

    The document is about residential mortgage lending.

  • Format and labels: Passed

    The record follows the AWACS format and uses its standard labels.