FHA Issues Due and Payable Waivers for Reverse Mortgage Non-Borrowing Spouses

The Federal Housing Administration (FHA) on Thursday announced the issuance of temporary waivers for non-borrowing spouses (NBS) of Home Equity Conversion Mortgage (HECM) borrowers, superseding the instructions of two previously released Mortgagee Letters (MLs) due to ongoing concerns related to the COVID-19 coronavirus pandemic.

“Eligible HECM NBS currently have 90 days after the death of the last surviving HECM borrower to establish legal ownership or other ongoing legal right to remain in the property,” FHA said in an INFO notice announcing the action. “Today, FHA issued a temporary partial waiver and corresponding housing directive waiver of that requirement in the superseded Mortgagee Letter (ML) 2014-07 and subsequent ML 2015-02 due to continued COVID-19 National Emergency concerns.”

Findings leading to waiver

In a filing declaring the waiver, FHA Commissioner Dana Wade details her reasoning for instituting it based on the current situation being faced by people all across the country currently contending with the ongoing pandemic, and the need for current practice by the U.S. Department of Housing and Urban Development (HUD) to be amended during this time.

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“HUD’s requirement for FHA-insured HECMs that an Eligible Non-Borrowing Spouse must, within 90 days from the death of the last surviving borrower, establish legal ownership or other ongoing legal right to remain for life in the property securing the HECM is not practical given the public health recommendations being disseminated by local, state, and federal government agencies to limit contact between individuals to contain the spread of COVID-19,” Commissioner Wade explained.

Dana Wade official HUD portrait. HUD | CC0
FHA Commissioner Dana Wade

Given the fact that many government offices and businesses remain closed or operate on more limited schedules due to the pandemic, eligible NBS may find it inherently more difficult to gather the necessary documentation to establish his or her legal right to remain in a property which is secured by a HECM, she says.

“A partial waiver is necessary to allow Eligible Non-Borrowing Spouses to enter into a deferral period and avoid foreclosure when an Eligible Non-Borrowing Spouse is unable to meet this requirement due to the COVID-19 Emergency,” Wade explained. “Without the partial waiver, otherwise eligible Non-Borrowing Spouses may be foreclosed upon due to circumstances beyond their control due to the COVID-19 Emergency.”

Determinations of action

Because of these issues complicating the ability for an eligible NBS to prove his or her legal right to remain in the home, a waiver of the 90-day timetable must be granted, the Commissioner said. In addition to being “consistent with the Department’s objectives to promote homeownership and avoid foreclosure,” the waiver will also “reduce potential increased risk” to the Mutual Mortgage Insurance Fund (MMIF), which HUD aims to one day separate the HECM program from.

All other requirements related to servicing of FHA loans remain in effect, and the waiver will be limited to a period of 12 months after the issuance date, according to the waiver declaration signed by Commissioner Wade.

Recent history

HUD first established the rules regarding eligible NBS on HECM loans with ML 2014-07 published in April 2014, which gave eligible NBS the ability 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. It was this ML that gave NBS the right to defer the loan’s due and payable status under the terms of the loans in cases where the named borrower passes away.

The ML was issued in the wake of a lawsuit filed against HUD by AARP in 2011 required the Department to provide relief to several plaintiffs.

Last year, HUD expanded protections for NBS of HECM borrowers by updating the Mortgagee Optional Election (MOE) Assignment for HECMs with case numbers assigned prior to August 4, 2014. Under the MOE options previously available to non-borrowing spouses, some eligible non-borrowing were able to defer loan repayment under certain terms and time frames. These added protections were largely welcomed by the reverse mortgage industry.

Read the waiver as declared by Commissioner Wade at HUD.

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  • As I read the above article, and the waiver document itself, it would appear that for 12 months beginning Oct 1, 2020 eligible NBS have NO time limit on the requirement that they prove their legal right to occupy the property secured by the HECM. Does this effectively eliminate the requirement altogether during the 12-mo waiver period, meaning that NBS requesting deferral have only to establish that they meet the remaining deferral criteria in order to remain in the home?

  • Mortgagee Letter 2019-15:

    In addition, FHA NO LONGER REQUIRES, as a condition of meeting the definition of “Eligible Surviving Non-Borrowing Spouse,” that the Non-Borrowing Spouse possess or demonstrate the ability to obtain good and marketable title to the property or a legal right to remain in the property for life.

    While this ML was specific to case numbers assigned prior to August 4, 2014, why is this different enough that it wouldn’t be carried forward?

  • I interpret this partial waiver as being temporary until things settle down and all factors can be analyzed. At such time in the future, I feel the ruling, “Eligible HECM NBS having 90 days after the death of the last surviving HECM borrower to establish legal ownership or other ongoing legal right to remain in the property”, will revert to its original status!

    John A. Smaldone
    http://www.hanover-financial.com

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