HUD Updates Non-Recourse Language in Reverse Mortgage Handbook

Following changes to the language regarding the non-recourse nature of reverse mortgages under the Federal Housing Administration’s Home Equity Conversion Mortgage program, language for counselors and lenders has been updated officially.

In April, 2011, the agency published Mortgagee Letter 2011-16 to rescind guidance issued in 2008 to clarify its non-recourse policy on reverse mortgages insured by the Federal Housing Administration. The change came following a lawsuit filed by AARP against the Department of Housing and Urban Development regarding the policy. 

HUD has updated its handbook to reflect that reverse mortgage loans are non-recourse, meaning that a borrower and his or her heirs or estate will only be responsible for repaying 95% of the appraised home value, rather than the loan balance if that balance is greater than the home’s worth at the time of sale.


“The current language in Handbook 7610.1 REV5, page 105 “Non-Recourse Feature” incorrectly states that if the heirs or the estate wish to keep the property, they are personally liable for the full balance of the loan,'” HUD wrote in a notice to its protocol clarification. “However, when a HECM loan becomes due and payable as a result of the mortgagor’s death and the property is conveyed by will or operation of law to the mortgagor’s estate or heirs (including a surviving spouse who is not obligated on the HECM note) that party (or parties if multiple heirs) may satisfy the HECM debt by paying the lesser of the mortgage balance or 95% of the current appraised value of the property.”

The update comes about two years following the change, as outlined in Mortgagee Letter 2011-16. Other resources and materials including the National Council on Aging’s reverse mortgage booklet for consumers, have already been updated to reflect the change specified in Mortgagee Letter 2011-16. 

View Frequently Asked Questions on the topic from HUD

Written by Elizabeth Ecker

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  • Elizabeth,

    Can you point to any reference to the borrower? The HUD FAQs cover only post mortem transfers of the property. The NCOA booklet states the following:

    “You (or your heirs) will never owe more than the value of the home if you sell the property to repay the loan, even if the value of your home declines. If your heirs choose to keep the home, they will need to pay off the loan at 95% of the fair market value of the home, as determined by a third-party appraiser.”

    The booklet says nothing about the borrower. This has been a sticking point for several of us. The concept only seems to cover sales. HUD now considers a payoff by heirs, estate, or trust as a sale since none of these persons were borrowers.

    Can you please point us to where HUD has literally stated that the non-recourse 95% of appraised value policy includes the case where the borrower wants to retain the home? Or is Regulation 24 CFR 206.125(c) now controlling as to the borrower?


  • The restoration of the original non-recourse language shows that HUD is moving forward on HECM consumer protection issues. Next: the non-borrowing spouse dilemma.
    Bravo Commissioner Galante!

    • Atare,

      Perhaps you can respond to my question to Elizabeth on the fact that the changes have not yet been posted the the online HECM handbook.


      • The_Critic —
        It will be posted. Your vigilance and nose for detail in these matters is always refreshing. Have a wonderful summer!

  • Elizabeth,

    For the second day in a row I have gone to the HUD website and searched the HECM handbook 4235.1 for the update but cannot find it. Is the update in some other handbook or has HUD delayed the posting of the changes to Handbook 4235.1?


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