CFPB Issues Rule For Heirs of Mortgage Holders

The Consumer Financial Protection Bureau (CFPB) has issued an interpretive rule that will make it possible for heirs to take over mortgages when the borrower dies. 

The rule clarifies that when a borrower dies, the heir can be added to the mortgage without triggering the CFPB’s Ability-to-Repay rule, which requires lenders to make a “reasonable, good-faith determination” that prospective borrowers have the ability to repay the loan. It does not require a lender to first determine the heir’s ability to repay before formally recognizing him or her as the borrower. 

This clarification will allow surviving family members who acquire title to a property to take over the deceased borrower’s mortgage and to be considered for a loan workout, if necessary, to keep their home. 

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“Losing a loved one should not mean also losing your home. [This] interpretive rule makes it clear that when family members inherit property, they can take over the mortgage without jumping through unnecessary hoops,” said CFPB Director Richard Cordray in a written statement. “This gives heirs an opportunity to work with the lender to pay off the loan or seek a loan modification.”

The CFPB’s rule comes on the heels of recent guidance issued by the Department of Housing and Urban Development (HUD) to address issues related to non-borrowing spouses of reverse mortgages. 

HUD released new home equity conversion mortgage (HECM) principal limit factors for ages under 62 following the agency’s decision to allow for non-borrowing spouses of new reverse mortgage borrowers after Aug. 3 to remain in their homes after the death of the borrower. 

Written by Emily Study

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  • This could be a confusing rule? Will the CFPB require the new HUD PLF tables to be used, or, will they allow the heirs to just assume the balance of the reverse mortgage, depending on the heirs ability to pay??

    I can see that there will need to be an extensive and detailed rule put out to answer the many questions this will create. It will be interesting in coming weeks and months how this rule will play out?

    John A. Smaldone

  • While this ruling is unlikely to have any impact on HECMs and perhaps even proprietary reverse mortgages, psychologically it should be having some concern at many levels in our industry. I certainly would be leery of introducing a proprietary reverse mortgage in this environment especially if this ruling is applied retroactively.

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