[Update] FHA Gives New Options for Reverse Mortgage Non-Borrowing Spouses

The Federal Housing Administration (FHA) today issued new guidance for under the Home Equity Conversion Mortgage (HECM) program, allowing lenders the option to delay foreclosure of non-borrowing spouses, according to a new Mortgagee Letter.

The guidance presents an option, not a requirement for lenders, meaning that existing non-borrowing spouses may have new protections under certain circumstances.

“FHA’s new guidance will allow reverse mortgage lenders to assign eligible HECMs to HUD upon the death of the last surviving borrowing spouse, thereby allowing eligible surviving spouses the opportunity to remain in the home despite their non-brorowing status,” FHA stated in an announcement Thursday on the release of Mortgagee Letter 2015-03.

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Under FHA’s new policy, lenders will have the option to pursue claim payments for qualifying HECMs with Eligible Surviving Non-Borrowing Spouses and case numbers assigned before August 4, 2014.

They may do so by allowing claim payment following the sale of the property by heirs or estate; foreclosing in accordance with the terms of the mortgage, and filing an insurance claim under the FHA insurance contract as endorsed.

They may also elect to assign the HECM to HUD upon the death of the last surviving borrower, where the loan would not otherwise be assignable to FHA, also known as the Mortgage Optional Election Assignment.

“By electing the [MOE] Assignment, lenders will be permitted to modify their FHA mortgage insurance contracts to permit assignment of an eligible HECM to HUD despite the HECM being eligible to be called due and payable as a result of the death of the last surviving borrower,” FHA stated.

The policy update is the latest move from FHA on the topic of increasing protections for non-borrowing reverse mortgage spouses—an issue that has been publicized in several court cases involving non-borrowing spouses, the AARP Litigation Foundation and HUD.

Last year, FHA amended its HECM policies to allow for the deferral of foreclosure, or “due and payable status” for certain eligible non-borrowing spouses for case numbers assigned on or after Aug. 4, 2014.

“Today’s action allows lenders to offer similar treatment for eligible HECMs and Eligible Non-Borrowing Spouses with FHA case numbers issued before August 4, 2014,” said FHA.

However, non-borrowing spouses of HECM borrowers are not automatically guaranteed that they will be able to stay in the home if the reverse mortgage was taken prior to Aug. 4, All Reverse Mortgage Company CEO Mike Branson wrote following the release of the guidance.

“But at least now there is a possibility of said deferral, and so spouses who find themselves in this situation should certainly check with their lender to see if they might be able to take advantage of the new options,” Branson said.

In tandem with other recent changes made under the Reverse Mortgage Stabilization Act of 2013, the new non-borrowing spouse guidance is seen by top lender AAG as a positive shift for the program overall.

“Today’s guidance from HUD means greater stability for the HECM program,” said American Advisors Group Chief Creative Officer Teague McGrath. “These, and other recent changes—particularly financial assessment—reinforce the message that reverse mortgages will be available to American seniors for the long-term, as a solid and secure financial planning tool.”

The National Reverse Mortgage Lenders Association (NRMLA) commended HUD for its new guidance.

“We are glad to see HUD bring some resolution to this longstanding issue. It’s good to get it behind us for all concerned, including borrowers, non-borrowing spouses and the industry,” wrote NRMLA President and CEO Peter Bell in an email to RMD.

Written by Jason Oliva

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  • The NBS issue is starting to become very frustrating and very confusing. HUD just issued mortgagee letter 2015-02, which got into eligible NBS and non eligible NBS’s.

    HUD needs to get their act together on this NBS issue. The industry has enough to absorb, we don’t need to go back and forth on new mortgagee letters coming out about the NBS ruling. One letter should have been more than enough.

    What else are we going to see prior to March 02, 2015??

    John A. Smaldone

    • John,

      I am a recent arrival to these blogs but the problem is HUD refused to follow the law decades ago. If AARP correctly continues down this trail, it will challenge HUD as to other default events, non-borrowing spouses who were not married to the borrowing spouse at closing, residency requirements other than at the time of the deferment, and perhaps other areas which are beyond my view.

      It seems unlikely that the ire of AARP is finished with a regulator who has acted in this manner. It is likely that more change will come. For some of us Mortgagee Letter 2015-03 is little more than a long overdue but nice start.

      • Welcome to the group reverse_mortgage_ maven. What you are saying makes sense. I am not saying ML 15-03 is a bad thing, on the contrary. I am just wondering when things will settle down with ML changes prior to March 2nd.

        What I feel would be a great idea is that either HUD or one of the lenders out there put on a final webinar covering FA and the NBS issue as well as the seasoning requirement ruling. Make it an all in one webinar. That is my two cents worth. Make it a great day and again, welcome aboard.

        John A. Smaldone

  • For all of you who thought the non-borrowing spouse issue was resolved with Mortgagee Letter 2015-02, welcome to the world of Mortgagee Letters 2014-07, 2015-02, and now 2015-03. Is that the “VERY” end? Let’s hope not.

    For far too long our industry has promoted the idea that non-borrowing spouses have no HECM displacement protection rights whether it was in our so called education or our entering into court cases siding with HUD. Yet the law is the law and until HUD had both the Reverse Mortgage Stabilization Act of 2013 combined with Mortgagee Letter 2014-07, non-borrowing spouses should have been discovering their legal rights as to displacement protection under the law.

    Thank goodness AARP stepped up to the challenge but it is sad how many decades went by before the first court case appeared. It is now time to prove our care for our prior customers by renouncing our prior “education” by 1) notifying them of the new rules and how it may impact them and 2) encouraging them to seek the advice of legal counsel particularly if they were a non-borrowing spouse when a HECM became due and payable. Mortgagee Letter 2015-03 is a rather shallow and pathetic procedure to implement what is apparently required under the law as it existed for borrowers and their non-borrowing spouses with HECMs which received their case number assignments before August 4th, 2014.

    So what does the law say at 12 USC 1715z-20(j) when it comes to displacement of a spouse, borrowing or not? “The Secretary may not insure a home equity conversion mortgage under this section unless such mortgage provides that the homeowner’s obligation to satisfy the loan obligation is deferred until the homeowner’s death, the sale of the home, or the occurrence of other events specified in regulations of the Secretary. For purposes of this subsection, the term ‘homeowner’ includes the spouse of a homeowner.”

    So from the law it has always been clear that HUD should never have endorsed even one HECM unless the protection found in the law was afforded in the mortgage documents. Even HUD itself makes that point in the latest Mortgagee Letter. Because of Mortgagee Letter 2014-07 combined with the Reverse Mortgage Stabilization Act of 2013 [codified at 12 USC 1715z-20(h)(3)], the displacement protection of 12 USC 1715z-20(j) may no longer apply to non-borrowing spouses for all HECMs with case numbers assigned after August 3, 2014. Again affected borrowers and their non-borrowing spouses should seek the advice of competent legal counsel in determining their rights under the law even as to Mortgagee Letter 2014-07. It should also be clear that Mortgagee Letter 2015-03 does not impact borrowers or non-borrowing spouses directly but it does impact mortgagees directly as to how to be reimbursed and how to obtain an early assignment because the HECM due and payable provision has been or is being delayed solely due to a non-borrowing spouse not being displaced as a result of an acceptable provision of Mortgagee Letter 2015-03.

    So what else is needed in Mortgagee Letter 2015-03? First the law only speaks of spouses and since the provision is only dealing with displacement protection when a triggering event occurs, then the test should be limited to who is a spouse at that time and only that time. Second, there should be no residency test other than the spouse of a borrower must be able to establish that the collateral is that person’s principal residence as of the date of the triggering event in much the same way as it applies to HECMs for Purchase as of the date of closing. Third, the spouse of the borrower must be able to establish a significant interest in the property which must have existed either before the triggering event or as a result of the demise of a borrowing spouse. Fourth, the events permitting delay should be expanded to include all those other than default for property charge payments, and transfers in title which create a due and payable requirement under the terms of the loan; thus a non-borrowing spouse otherwise qualifying under Mortgagee 2015-03 should be allowed to defer enforcement of a HECM if the only default is the borrowing spouse no longer uses the home as a principal residence or is away from the home for more than one year due to a medical or mental situation.

    It is odd that the majority in the industry was on the wrong side of our customers in standing with a regulator who has intentionally ignored the law and now must backtrack on its prior position. It is apparent HUD has dropped its threatened and foolish stated intention of appealing the decision of the Court of Appeals recognizing the rights of a specific but very limited group of non-borrowing spouses. We should be crying out that HUD should be in full compliance with the law not just as to Mortgagee Letters 2014-07 and 2015-02 but also as to 12 USC 1715z-20(j) as to all non-borrowing spouses to which it applies.

    So to be as clear as possible, those non-borrowing spouses who sought their rights in the courts were not freeloaders. They were not people who were looking for government handouts. They were not people who did not learn the false claims we were making about their displacement protection rights under the law. They were simply seniors who were protected by none of us and sought their rights the only way they could — in the courts. If I sound a touch angry, you are right. Thank goodness HUD as at least begun to come to its senses about a protected class of citizens.

    • Reverse_Mortgage_Maven:

      I want you to know that your post is on the money. And your concluding paragraph is particularly courageous. The industry’s knee-jerk support for HUD on this issue is a part of the problem. It negates its claim that it cares for seniors.

      There is nothing honorable or redeeming in applauding a powerful federal bureaucracy that is using its awesome power to hurt hapless widowed spouses it is mandated to protect from displacement.

      Thank you and God bless you!

  • It is good to read that both AAG and NRMLA are congratulating HUD on its new policy position. While it may have eventually have to go further, Mortgagee Letter 2015-03 is a breath of fresh air. It is doubtful if HUD will continue its appeal to the Supreme Court.

    HUD will likely take a significant hit in this fiscal year’s financial statement related to the loss the policy changes are expected to create. Now on to Congress to get the new non-borrowing spouse positions fully funded. Too bad the changes were not instituted last year so that funding might have faced a more favorable reception in Congress.

    Further modification to the non-borrowing spouse policy will likely have to be moderated due to financial considerations. There is a long way to go before the HECM portion of the MMI Fund can once again reach its legal reserve requirements.

  • Why don’t the provisions of this new policy mandate that lenders offer the impacted non-borrowing spouses the right to defer the due and payable status of the related HECM? It should not be left up to the lender’s discretion. As to enforcement and fairness in application and operation, this is the weakness of this new policy.

    • Not only that, the costly compliance hoops lenders have to jump through to use the MOE Assignment will incentivize them to foreclose which will expose them to potential illegal-foreclosures litigation. HUD is putting lenders in harm’s way.

  • “New Options” is a misunderstanding. It is actually one option (the Mortgagee Optional Election or MOE Assignment), except the six plaintiffs and one other non-borrowing spouse, who have access to the other option called Hold Election (HE).

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