FHA Updates Reverse Mortgage Program to Protect Non-Borrowing Spouses

The Department of Housing and Urban Development today issued a mortgagee letter outlining changes to its reverse mortgage regulations and requirements that will protect non-borrowing spouses for new case number assignments on or after August 4.

For those new case number assignments, non-borrowing spouses will be able to remain in their homes, provided they are married to the borrower at the time of closing and their spousal status is disclosed at that time via a certified letter.

Non-borrowing spouses will be able to defer the loan’s due and payable status under the terms of the loans in cases where the named borrower passes away, according to Mortgagee Letter 2014-07. The the certification must be submitted annually with additional documentation should the named borrower pass away or move from the home permanently.

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The agency acknowledged there have been two interpretations of the Home Equity Conversion Mortgage statute, one of which considers the non-borrowing spouse as a homeowner, and the other, which does not.

“FHA continues to believe that its original interpretation gives full force and effect to the intent of the statute. Nevertheless, recent events have advanced  another possible interpretation of Subsection 255(j),” HUD states. “This alternative interpretation would extend the mortgage insurance eligibility requirements concerning the safeguard to the mortgagor and any Non-Borrowing Spouse of the mortgagor, at the time of origination.”

HUD said in the mortgagee letter that it will be updating principal limit factor tables, but has not yet said when the new tables will be available.

“Where a HECM mortgagor has identified a Non-Borrowing Spouse, the mortgagee must base the Principal Limit on the age of the youngest mortgagor or Non-Borrowing Spouse,” HUD states. “Mortgagees will be required to use Factor Tables based on the age of the youngest Mortgagor or Non-Borrowing Spouse, if applicable.

The changes apply only to new borrowers, as HUD said it is unable to make changes to existing loans that have non-borrowing spouses present. HUD will also be submitting the new rules to the Federal Register where they will be open for public comment.

AARP has filed a lawsuit against the housing department representing non-borrowing spouses. HUD has been ordered to provide relief to several plaintiffs named in the case. It has also filed a class action lawsuit with the class yet to be certified.

This week, the agency said it is offering a 60-day extension for non-borrowing spouses facing foreclosure.

View Mortgagee Letter 2014-07.

Written by Elizabeth Ecker

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  • Oh boy, here comes the Supreme Court challenges of the rights of all sorts of “partnerships”, “unions” and myriad other social arrangements. It should be interesting.
    Also, under the Brave New Hecm 60, the additional reduction for younger borrowers will really start to look puny especially when the still invisible Servicing Fee Set Aside rears its head and the set aside is increased to account for the younger “partner”. Figure $2,000 less per year more or less for loan proceeds and 8,000 to 15,000 for the servicing set aside. . So much for bringing your teen bride into your reverse mortgage!

    • hecmvet,

      Are you as sure about this as you were about the approval of the secondary market for open end fixed rate HECMs? Never let it be said that you are not a true believer.

  • Praise God! Bravo Secretary Donovan!! Bravo Commissioner Galante!!! Bravo AARP Litigation, Jean Constantine-Davis, Steven Skalet, Craig Briskin, and all the legal warriors who fought the good fight!!!! This is a great day for America’s seniors who plan to use reverse mortgages to manage their retirement and for the reverse mortgage industry!!!!!

    There is still work ahead addressing the existing NBS cases, but it is evident that HUD is on the solution path. I am grateful that my proposal have become part of the solution to this thorny 25-year-old problem. God bless America!

  • Bold, structural, progressive are three words that best describe Mortgagee Letter 2014-07.
    The changes bring HECM into the 21st century. And FHA chief Carole Galante will go down as the leader who saved HECM and the reverse mortgage industry and dragged them into the 21st.
    The legal technicians who crafted the ML 2014-07 did an outstanding job (Bravo HUD lawyers!), but I have some questions for them.
    The Bennett interpretation of a HECM homeowner is now the governing interpretation (Bravo AARP Litigation, Jean Constantine-Davis, Steven Skalet, and team!).
    Above all, protection from displacement of a non-borrowing spouse is now law. Is there a better and stronger reverse-mortgage product on this planet than HECM?
    Viva Galante!

    • Atare,

      I do not believe your claim is correct. Mortgagee Letter 2014-07 only covers surviving non-borrowing spouses who were married to the borrower at the time of closing. The law makes no such distinction.

      As a cynic and someone who has been involved in legal strategies of this nature, HUD has taken the very negative position of divide and conquer.

      12 USC 1715z-20(j) provides protection to the surviving spouse of the borrower no matter when they were married as long as the wife was married to the borrower at the time that the terminating event occurred.

      I am surprised that you are praising a decision with such a narrow interpretation when the law does read the way that either you or HUD have determined. Where is the wording you praise in the law?????

    • Atare,

      I do not believe your claim is correct. Mortgagee Letter 2014-07 only covers surviving non-borrowing spouses who were married to the borrower at the time of closing. The law makes no such distinction.

      As a cynic and someone who has been involved in legal strategies of this nature, HUD has taken the very negative position of divide and conquer.

      12 USC 1715z-20(j) provides protection to the surviving spouse of the borrower no matter when they were married as long as the wife was married to the borrower at the time that the terminating event occurred.

      I am surprised that you are praising a decision with such a narrow interpretation when the law does read the way that either you or HUD have determined. Where is the wording you praise in the law?????

  • Teen brides aside this new ruling will go a long way towards addressing an old problem, that being the borrower whose spouse is only a few years away from being eligible. The question has always been, take off the spouse and consider refinancing to add them when they are eligible or delay getting a hecm until the spouse is old enough.
    I am scratching my head however over how HUD came to the decision to effectively eliminate a minimum eligibility age for this program.

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