A slew of reverse mortgage articles covered by the mainstream press in recent weeks have tackled everything from basic loan requirements to upfront costs and calculations. Few reports, however, have delved into one of the most critical program changes to impact reverse mortgages over the past few years: updates to the non-borrowing spouse policy.
Instances where surviving spouses faced foreclosure following the death of their borrowing husband or wife has been a controversial component of the Home Equity Conversion Mortgage (HECM) program, and one that has often cast a shade over reverse mortgages in the media.
In 2014, the Department of Housing and Urban Development (HUD) updated the HECM program via Mortgagee Letter 2014-07, which allowed non-borrowing spouses to defer the reverse mortgage’s due and payable status in cases where the named borrower dies. The ruling applied to all HECM case numbers issued on or after August 4, 2014.
Since then, HUD has issued a series of updated guidance on the issue, including the introduction of the Mortgagee Optional Election (MOE) assignment, which allows lenders to assign eligible HECMs to HUD despite the death of the last surviving borrower and regardless of the loan’s unpaid principal balance.
“The [MOE] program permits the lender to allow a surviving spouse to continue to live in the home, even when the surviving spouse isn’t listed on the loan document as a borrower,” said Sarah Mancini, an attorney at the National Consumer Law Center in Washington, D.C., in a recent Bankrate.com article republished by Houston’s Chron.com last week.
The article goes on to explain some of the criteria for widows and widowers to become eligible for the MOE, including the requirement that non-borrowing spouses must have been married to their borrowing spouse at the time the reverse mortgage loan was originated, and stayed married until the borrower’s death.
“Same-sex spouses who couldn’t legally marry in their state when the loan was made, but married later, can qualify,” the article states, also acknowledging that state-recognized common-law marriages and civil unions could also be accepted.
Under the HECM guidelines, particularly those outlined in ML 2014-07, surviving spouses are required to maintain their home as their principal residence.
Surviving non-borrowing spouses must also establish legal ownership or other right to remain in the property within 90 days from the death of the HECM borrower. Spouses may be granted an extension if they are unable to timely obtain legal title due to circumstances wholly outside of their control, according to the most recent HUD guidance issued last month.
For surviving spouses interested in requesting an MOE assignment, the Chron.com article suggests contacting the reverse mortgage loan servicer to learn more.
“It does take some effort, and especially considering you’ve just lost a spouse, it’s a very stressful time,” said Amy Ford, director of home equity initiatives for the National Council on Aging in Arlington, Va., in the article. “But if you want to be able to stay in the home, contacting the loan servicer and being able to execute on these technical pieces—the paperwork—would be important.”
Read more at Chron.com.
Written by Jason Oliva