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.
Written by Elizabeth Ecker