The National Reverse Mortgage Lenders Association (NRMLA) has submitted a letter to the U.S. Department of Housing and Urban Development (HUD), specifically requesting the Department to update the Home Equity Conversion Mortgage (HECM) loan documents and security instrument so that they conform with non-borrowing spouse (NBS) protections that were recently announced in a Mortgagee Letter (ML).
In the comments that the association submitted, there are several proposed edits for the relevant documents revolving around a technical focus. Servicers have additionally requested that the Department provide written confirmation that says they can begin complying with the newly-announced changes before the relevant loan documents are updated, in order to effectively avoid endangering the insurance on affected and relevant loans.
“[T]he maturity events in the HECM notes and the security instruments, along with the language in the borrower and NBS-related closing certifications, when applicable, should be changed to both remove the requirement that an NBS must establish marketable title or other legal right to occupy the property, and to expand the deferral period eligibility not only to cover the period after a borrower’s death, but also if the borrower is out of occupancy for greater than 12 consecutive months while in a health care facility,” the letter reads in part.
Provisions of ML
The relevant ML, 2021-11, features four primary new protections for eligible NBS in a reverse mortgage transaction, including the expansion of criteria that begins a deferral period for HECM loans with case numbers assigned on or after August 4, 2014, including for a scenario in which the primary borrower resides in a healthcare facility for more than 12 consecutive months but the NBS has remained in the home.
The ML also expands assignment criteria for Mortgagee Optional Election (MOE) Assignments for HECMs with case numbers assigned before August 4, 2014. The new criteria will “include HECMs eligible to be called due and payable under the terms of the original mortgage due to the property no longer being considered the Principal Residence of a borrower due to the borrower’s residence in a health care institution for more than 12 consecutive months,” according to the ML.
Additionally, the definition of someone who can be called an “eligible non-borrowing spouse” has been expanded to include “the spouse of a HECM borrower where the HECM loan was assigned an FHA case number prior to August 4, 2014,” as well as several additional new criteria. Such newly-eligible NBS can be spouses who were legally married to the borrower either through the borrower’s death or during the borrower’s relocation into a healthcare facility.
That definition also includes an allowance for a spouse who was in a “committed relationship” with the borrower but who may not have been legally allowed to marry at the time the HECM was closed, but who was married sometime prior to the borrower’s death or remains married after the borrower’s relocation to a healthcare facility.
Reaction to original ML
Reverse mortgage servicing professionals largely welcomed the new changes from HUD when reached by RMD shortly after the publication of the relevant ML.
“I believe that the servicing industry is very appreciative that HUD has essentially created one set of rules for all non-borrowing spouses to remain in their homes,” says Leslie Flynne, SVP of loan servicing at Reverse Mortgage Solutions (RMS) to RMD in May. “The timeframes required for NBS to meet the requirements are accomplishable and hopefully this will bring an end to this very troublesome issue.”
NRMLA members can view the submitted letter in its entirety on the association’s website.