HUD Publishes Clarification of Non-Recourse Policy For HECMs

image Today the Department of Housing and Urban Development published Mortgagee Letter 2008-38 to provide further clarification regarding the requirements for repayment of Home Equity Conversion Mortgages (HECMs) and for termination of a HECM mortgage.

HUD’s Handbook 4235.1 REV-1, Home Equity Conversion Mortgages, provides in Paragraph 1-3C, that:

The HECM is a “non-recourse loan”. This means that the HECM borrower (or his or her estate) will never owe more than the loan balance or value of the property, whichever is less; and no assets other than the home must be used to repay the debt.

Advertisement

According to the ML, some people mistakenly infer from this language that a borrower (or the borrower’s estate) could pay off the loan balance of a HECM for the lesser of the mortgage balance or the appraised value of the property while retaining ownership of the home. This is not correct and is not the intended meaning of the quoted provision.

Non-recourse means simply that if the borrower (or estate) does not pay the balance when due, the mortgagee’s remedy is limited to foreclosure and the borrower will not be personally liable for any deficiency resulting from the foreclosure.  Most situations regarding the termination of a HECM mortgage fall into the following general categories:

  1. If the mortgage is not due and payable, and the borrower desires to retain ownership of the property, the mortgage debt may be repaid in full at any time.
  1. If the mortgage is due and payable and the borrower (or estate) desires to retain ownership of the property, the mortgage debt must be repaid in full. Lenders may assist the borrower (or estate) in obtaining other financing to pay off the HECM loan in full.
  1. Whether or not the mortgage is due and payable the borrower may, at any time, sell the property for at least the lesser of the mortgage debt or the appraised value.
  1. If the mortgage is due and payable and the borrower (or estate) will not be retaining ownership of the property, the property may be sold for at least the lesser of the unpaid mortgage balance or 95% of appraised value.

In any circumstance where a mortgagee agrees to the acceptance of less than the full mortgage balance, such sale of the property by the borrower (or the borrower’s estate) should be an arm’s length transaction. An arm’s length transaction is characterized by the following

  1. The absence of a relation between the buyer and seller.
  2. A selling price and other conditions that would prevail in an open market environment.
  3. Transaction costs paid by the seller that are considered both reasonable and customary for the market in which the property is located.
  4. The adherence to ethical standards of conduct by all parties involved in the HECM short sale transaction, including the borrowers (or the estate), mortgagees and appraisers.

To read a copy of the Mortgagee Letter click the link below.

Mortgagee Letter 2008-38

Technorati Tags: ,,,,

Join the Conversation (10)

see all

This is a professional community. Please use discretion when posting a comment.

  • Recently, I asked you esteemed mortgage wizzards if
    anyone knew where it was in print that heirs have a full year to satisfy the Reverse mortgage debt with
    a conventional mortgage or the sale of the property.
    After calling the HUD/FHA information hot line (which
    I reccomend to all), the answer is in the FHA Reverse Mortgage Handbook, Section 4330.1, page 25, under the heading “Foreclosure”. The time period is 12 months
    in 3 month intervals as long as the party is making a good faith effort to sell the property perhaps in a challenging market. Just thought someone out their might also like to know.

  • In your comment above you said: After calling the HUD/FHA information hot line …
    What is that number and where can I find or reference the number you use ?? Thank You.

    Is this it 202) 708-1112 .. from the bottom of the HUD web site ?

    U.S. Department of Housing and Urban Development
    451 7th Street S.W., Washington, DC 20410
    Telephone: (202) 708-1112 TTY: (202) 708-1455
    Find the address of a HUD office near you

  • In your comment above you said: After calling the HUD/FHA information hot line …
    What is that number and where can I find or reference the number you use ?? Thank You.

    Is this it 202) 708-1112 .. from the bottom of the HUD web site ?

    U.S. Department of Housing and Urban Development
    451 7th Street S.W., Washington, DC 20410
    Telephone: (202) 708-1112 TTY: (202) 708-1455
    Find the address of a HUD office near you

  • In your comment above you said: After calling the HUD/FHA information hot line …
    What is that number and where can I find or reference the number you use ?? Thank You.

    Is this it 202) 708-1112 .. from the bottom of the HUD web site ?

    U.S. Department of Housing and Urban Development
    451 7th Street S.W., Washington, DC 20410
    Telephone: (202) 708-1112 TTY: (202) 708-1455
    Find the address of a HUD office near you

    Or perhaps this number
    Federal Housing Administration Hotline
    (800) 483-7342

    found by following these links:
    http://www.usa.gov/Contact/Directories.shtml

    http://www.info.gov/toll-free.htm

  • In your comment above you said: After calling the HUD/FHA information hot line …
    What is that number and where can I find or reference the number you use ?? Thank You.

    Is this it 202) 708-1112 .. from the bottom of the HUD web site ?

    U.S. Department of Housing and Urban Development
    451 7th Street S.W., Washington, DC 20410
    Telephone: (202) 708-1112 TTY: (202) 708-1455
    Find the address of a HUD office near you

    Or perhaps this number
    Federal Housing Administration Hotline
    (800) 483-7342

    found by following these links:
    http://www.usa.gov/Contact/Directories.shtml

    http://www.info.gov/toll-free.htm

string(105) "https://reversemortgagedaily.com/2008/12/09/hud-publishes-clarification-of-non-recourse-policy-for-hecms/"

Share your opinion