New FHA guidelines to delay reverse mortgage foreclosures

HECM spouses get to stay for longer

The U.S. Department of Housing and Urban Development and the Federal Housing Administration announced changes to its reverse mortgage program designed to keep non-borrowing spouses during the foreclosure process.

The FHA issued a new policy under its Home Equity Conversion Mortgage program, which allows FHA-approved lenders to delay foreclosure proceedings against non-borrowing spouses in the event of the death of the last surviving borrower.

The FHA’s new guidance will allow reverse mortgage lenders to assign eligible HECMs to HUD upon the death of the last surviving borrowing spouse, which would allow eligible surviving spouses the opportunity to remain in the home despite their non-borrowing status.

The changes are similar to HECM policy changes announced by the FHA in 2014, but those policy changes only applied to case numbers assigned on or after August 4, 2014.

The new changes allows lenders to offer these new protections to case numbers assigned before August 4, 2014.

According to the FHA, under the new policy, lenders will be allowed to pursue claim payments for HECMs with eligible surviving non-borrowing spouses and case numbers assigned before August 4, 2014 by:

  • Allowing claim payment following sale of the property by heirs or estate
  • Foreclosing in accordance with the terms of the mortgage, and filing an insurance claim under the FHA insurance contract as endorsed
  • Electing to assign the HECM to HUD upon the death of the last surviving borrower, where the HECM would not otherwise be assignable to FHA (otherwise known as the Mortgagee Optional Election Assignment)

“By electing the MOE Assignment, lenders will be permitted to modify their FHA mortgage insurance contracts to permit assignment of an eligible HECM to HUD despite the HECM being eligible to be called due and payable as a result of the death of the last surviving borrower,” HUD said in a release announcing the changes.

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