FHA Revises Reverse Mortgage Program to Protect Non-Borrowing Spouses From Foreclosure

DSNews   By: Brian Honea  June 15, 2015

The Federal Housing Administration (FHA) on Friday announced revisions to its Home Equity Conversion Mortgage (HECM) program that will allow FHA-approved lenders to offer more options to eligible surviving non-borrowing spouses.

The revisions announced Friday allow for the deferral of due and payable status for reverse mortgages, hence protection from foreclosure, for certain eligible non-borrowing spouses upon the passing of the last surviving borrower for case numbers assigned prior to August 4, 2014. Last year, FHA‘s HECM policies were revised to include such protections for non-borrowing spouses on HECMs for case numbers assigned on or after August 4, 2014.

The new changes allow lenders to proceed with submitting claims on HECMs under the new policy for eligible non-borrowing spouses and case numbers assigned before August 4, 2014 (in accordance with the terms of the new mortgagee letter) by exercising the Mortgagee Optional Election (MOE) assignment, which allows lenders to assign eligible HECMs to HUD in spite of the last surviving borrower’s death and regardless of the amount of unpaid balance on the loan.

Lenders may also proceed with submitting claims on HECMs for non-borrowing spouses on case numbers prior to August 4, 2014, by allowing claim payment after sale of the property by the heirs or the estate or by foreclosing according to the terms of the mortgage and subsequently filing an insurance claim under the FHA insurance contract.

The following conditions will allow surviving non-borrowing spouses to remain in their homes upon the death of the borrowing spouse: the lender or servicer agrees to it; the HECM has an FHA case number that was assigned prior to August 4, 2014; the non-borrowing spouse is current with tax and insurance payments; the property is maintained as the HECM requires; the non-borrowing spouse resided in the residence at the time of the HECM’s origination and the property is currently the non-borrowing spouse’s primary residence; they were legally married to the borrowing spouse prior to the loan’s closing or were in a committed same-sex relationship with the borrower but were prohibited by state law from marrying at the time of the HECM’s origination, then legally married before the borrower’s death; the non-borrowing spouse either has or can obtain a good, marketable title to the property or legal right to remain in the property for life within 90 days after the death of the last surviving borrower; and if the non-borrowing spouse meets all other terms and conditions of the original mortgage contract.

A copy of FHA’s new mortgagee letter can be viewed by clicking here.

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