HUD Rescinds Recent Rule on Reverse Mortgage Non-Borrowing Spouses

The Department of Housing and Urban Development (HUD) is officially rescinding a previous mortgagee letter that would have given reverse mortgage lenders the option to delay foreclosure of non-borrowing spouses via assigning the loan to HUD.

Thursday, HUD issued Mortgagee Letter 2015-12, effectively revoking the guidelines laid out in ML 2015-03 detailing the Mortgagee Optional Election (MOE) Assignment of Home Equity Conversion Mortgages (HECMs) assigned prior to August 4, 2014. Effectively immediatly, lenders will also have a new option to extend foreclosure proceedings for up to 60 days in certain cases.

Under the previous guidelines, lenders would have been able to assign eligible HECMs to HUD upon the death of the last surviving borrowing spouse, thereby allowing surviving spouses to remain in the home despite their non-borrowing status.

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Lenders would have also had the option to assign the HECM to HUD upon the death of the last surviving borrower through the “MOE.”

For any HECM with a case number issued before August 4, 2014 with a non-borrowing spouse, HUD is now providing HECM lenders with an additional 60-day time extension in which to take first legal action to begin foreclosure, and to comply with reasonable diligence timeframes for such reverse mortgages.

Lenders may immediately elect to begin using this extension, stated HUD in a memo on the HECM timeframe extensions.

“The request for an extension is not conditioned on the continued pursuit of foreclosure or the marketing of the property,” HUD stated in the memo. “The mortgagee’s request for an extension is effective when made and FHA will not be providing any specific approval for this extension.”

To elect an extension, HUD directs mortgagees must prepare a detailed Extension Request on their company’s letterhead, on which they must obtain an authorized loan servicing manager’s signature.

The move to rescind ML 2015-03 arrives one day after a notice in the Federal Register on HUD’s response to a number of public comments on the rule solicited by the Federal Housing Administration between February 6-9.

Written by Jason Oliva

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  • Who said that after Mortgagee Letter (ML) 2015-03 the NBS situation was cured? HUD should be ashamed it ever issued that ML. This at least begins the withdrawal of a horrible interpretation of law.

    12 USC 1715z-20(j) is clear. It does not allow FHA to insure any mortgage as a HECM which does not safeguard the homeowner against displacement. There is no such thing as a so called “non-borrowing spouse” in that provision. The law defines spouses as homeowners without qualification. Legally that can only mean the spouse who is the current spouse.

  • Oh yeah and there was the myth about there being no major HUD policy decisions for HECMs for some time to come after April 15, 2015. Let’s see there is: 1) the revised due and payable policy (ML 2015-10), 2) the revised loss mitigation policy (ML 2015-11), and 3) now the termination of the retroactive NBS policy (ML 2015-12).

    Oh yeah and the industry generated myths just keep on rollin’!!!! Are our leaders really that much in the dark about what is happening at HUD regarding HECMs. They have less of an idea of what is going than most of us. Talking about the blind leading the blind.

    So I will also make up my own. Do you hear the rustling of papers at HUD? Yup, this is the year for more policy changes.

    To those who may not like exposes, discourage our leadership from their public guessing and ranting. It makes fools of all of us.

  • With respect to foreclosures against properties that are occupied by non-borrowing surviving spouses, I agree that HUD should make it easier for surviving spouses to remain in the property; however, it is not an easy proposition when the non-borrowing surviving spouse is much younger in age compared to the original borrower. To make it easier for non borrowing surviving spouses to remain in the property when they have a much longer life expectancy creates larger policy issues and may have the result of reducing government funding for the HECMprogram and/or shift the burden of paying for the added costs to those married couples that are closer in age.

    • Arnold,

      The law as originally passed by Congress has a specific provision whereby HUD is prohibited from insuring any mortgage through endorsement as a HECM unless it protects the homeowner against displacement. That provision is 12 USC 1715z-20(j).

      The provision states that a homeowner includes the spouse. The provision fails to define the spouse as a borrowing spouse (the original position of HUD) or a spouse whom the homeowner was married to before the mortgage closed. Also there is nothing in the provision that would restrict the protection to the death of the borrower which is generally ignored by almost everyone. It would seem that the spouse is protected no matter how long the borrower is living outside the home as long as the spouse meets all required covenants. However, it is also clear that a spouse is not a borrower unless the spouse became a borrower at the closing of the mortgage. That means that the spouse has no right to proceeds just protection against displacement.

      Congress and President Reagan seemed to have wanted the spouse protected against displacement, no matter what. That is not the type of mortgage HUD has been insuring through endorsement. If the costs are too high, let HUD go to Congress for subsidies or for a change in the wording of the law.

  • “Lets pass it and read it later”?

    HUD should never had issued the ML in the first place. This does not sit well for HUD. They have done nothing but confuse our industry more than they already are.

    “Lets pass it and read it later”, a lot of meaning carried with fear to that statement. This makes me doubt the competency of the people who are issuing these ML and those who are supposed to be making things easier for the borrower as well as all of us in the reverse mortgage space!

    John A. Smaldone

    • John,

      Maybe I am reading your comment wrong but HUD did not pass anything. They simply issued a Mortgagee Letter.

      Who really cares if the industry is confused or not as long as the right thing is being done for seniors. Mortgagee Letter 2015-03 was not written for the sake of seniors but to preserve the hubris of HUD. In a phrase as to Mortgagee Letter 2015-03 — good riddance!!!

  • Many in the industry will view this as a non-event, as the criteria for qualifying a NBS on a pre-Aug 2014 loan for MOE deferral was so strict that few would qualify anyway.

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