The Federal Housing Administration (FHA) on Wednesday issued Mortgagee Letter (ML) 2022-15, which updates the requirements surrounding notices for due and payable statuses on Home Equity Conversion Mortgage (HECM) transactions. Specifically, the ML’s guidance now requires mortgagees to notify the borrower’s estate, heirs, or another party with legal title to the property that the HECM has become due and payable within 30 days of notifying FHA of the last surviving borrower’s death.
The new ML, signed by FHA Commissioner Julia Gordon, is an update to guidance originally issued via ML in 2015, which detailed how and when a HECM is considered eligible to be called due and payable, and provided an overview of the required notices servicers must execute to both HUD and to borrowers.
The new ML
In April 2015, the U.S. Department of Housing and Urban Development issued ML 2015-10. That letter provided reverse mortgage servicers with guidance relating to timeframes they could take certain actions on HECM loans that had reached due and payable status.
“Among the provisions in this policy is the requirement for servicers to provide notice to the estate or heirs of a deceased HECM borrower that the HECM has become due and payable within 30 days of the death of the borrower,” Wednesday’s ML reads. “This provision was intended to ensure that heirs and non-borrowing spouses, who may have had no previous knowledge of the HECM, were given notice of the HECM and their options for satisfying the debt.”
This guidance was important for the time it was issued since in early 2015, a non-borrowing spouse (NBS) was given 90 days to obtain “marketable title” or the legal right to remain inside the property for the rest of their life so they had the chance to qualify for a deferral period under the NBS guidance of the time.
“HUD has reviewed this policy considering recent policy changes that removed the firm 90-day deadline for non-borrowing spouses to establish marketable title or the legal right to remain in the property for life,” the new ML reads. “Accordingly, HUD is modifying the requirements in ML 2015-10 to align the notice policy for all HECMs regardless of case number assignment date or due and payable date.”
As a result, the new ML modifies the 2015 requirement for mortgagees to inform a borrower’s estate, heirs or other party that maintains legal title that the HECM has become due and payable, “from within 30 days of the date of the borrower’s death to within 30 days of providing notice of the borrower’s death to the Secretary,” the guidance says.
Reverse mortgage notice language
Regarding the notice that is to be issued to the reverse mortgage borrower’s estate, heirs, NBS or other applicable people with title to the property, FHA details that the mortgagee must provide certain information upon the borrower’s death.
“Where a HECM is due and payable as a result of the death of the borrower, the mortgagee must provide the borrower’s estate, heirs, or other party with legal title to the property securing the HECM with a Due and Payable Notice within 30 days after the date the mortgagee provides notice to the Secretary that the HECM has become due and payable as a result of the death of the last surviving borrower,” the ML reads.
The notice must state that the NBS, heirs or title holders have the option to satisfy the HECM loan amount, sel the property for at least 95% of the appraised value or provide the mortgagee with a property deed in lieu of foreclosure.
For mortgages with a case number assigned prior to August 4, 2014 — prior to certain newer revisions to NBS requirements — previous guidance issued in ML 2015-15 and 2019-15 (which added new NBS protections) still stands, according to the latest guidance.
Implementation, other details
HUD details that the guidance outlined in this ML can be implemented immediately if mortgagees so choose, but must be implemented no later than 90 days from the ML’s publication. In this case, 90 days from publication will be Tuesday, November 29, 2022.
There is also a note regarding implementing this guidance into HUD’s Home Equity Reverse Mortgage Information Technology (HERMIT) system.
“Until HUD’s [HERMIT] system is updated to incorporate the policy changes described in this ML, mortgagees may include debenture interest that was auto-curtailed for failure to meet notice requirements in a supplemental claim,” the guidance reads. “Mortgagees may only include debenture interest curtailed for this reason in supplemental claims where the death of the last surviving borrower occurred on or after the publication date of this ML.”
RMD reached out to the reverse mortgage industry trade association as well as three different servicing companies for their reactions to this latest guidance, but did not hear back as of press time.
Read ML 2022-15 at HUD.