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.
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