Changes to the principal limit factors (PLFs) for reverse mortgages and policies regarding non-borrowing spouse scenarios go into effect Aug. 4, the Federal Housing Administration (FHA) is reminding lenders.
In April, the Department of Housing and Urban Development informed lenders via mortgagee letter that it was introducing measures for new loans to protect non-borrowing spouses of reverse mortgage borrowers—namely allowing them to remain in the home indefinitely under certain terms and conditions and if they uphold the original terms of the loan.
Following the announcement, in June, the department also introduced new principal limit factors for loans originated on or after August 4, 2014; a change which makes more proceeds available to most borrowers in the current interest rate environment and includes a new table for non-borrowing spouse scenarios where the spouse does not meet the minimum age requirement of 62.
Now, HUD is reminding lenders of the effective date of the changes, and is issuing guidance on cancellation of case numbers and ordering of new case numbers for applications that are impacted by the changes.
“Mortgagees must permit prospective mortgagors to elect to use the policies announced in Mortgagee letters 2014-12 and 2014-07 if these mortgagors have not yet closed on their mortgage, have an assigned FHA Case Number, and have requested the change,” FHA says in the notice.
The new PLF tables to soon go into effect include figures for those under 62 following a decision by HUD to allow for non-borrowing spouses of new reverse mortgage borrowers to remain in their homes following the passing away of the borrower, under certain terms and conditions. The PLFs reflect loans for borrowers who are age 62 and older, but also loans for married couples where one borrower does not meet the traditional 62 year old age requirement.
A “special table” now includes PLFs for loans where one of the parties is age 18 to 61.
Mortgagee Letter 2014-07 outlines HUD’s new reverse mortgage regulations and requirements that will protect non-borrowing spouses for new case number assignments on or after Aug. 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 the letter.
FHA systems will be updated Aug. 2 to correspond with recent HECM policy changes for non-borrowing spouses and the new PLFs, to be ready for mortgagee use Aug. 4, according to FHA.
Written by Cassandra Dowell