Mortgage

FHA issues new reverse mortgage rules to protect spouses

Designed to allow non-borrowing partners to remain in home

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 in their homes after the last surviving borrower dies.

Earlier this year, the FHA released new guidance that allows FHA-approved lenders to delay foreclosure proceedings against non-borrowing spouses in the event of the death of the last surviving borrower.

Now, the FHA is expanding on those changes to its Home Equity Conversion Mortgage program, with a new policy that allows lenders to proceed with submitting claims on HECMs with eligible surviving non-borrowing spouses and case numbers assigned before August 4, 2014 in accordance with the terms of the mortgagee letter.

Claims will be submitted by:

  • 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 solely as a result of the death of the borrower. (The Mortgagee Optional Election Assignment)
  • 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

But by electing the Mortgagee Optional Election Assignment, lenders will be permitted assign an eligible HECM to HUD despite the death of the last surviving borrower and regardless of the loan’s unpaid principal balance. 

According to a release from HUD, following the death of their borrowing spouse, non-borrowing spouses may remain in their home if they meet all other terms and conditions of the original mortgage contract and under the following conditions:

  • The lender or servicer agrees
  • The reverse mortgage was assigned an FHA case number prior to August 4, 2014
  • They are current in making timely tax and insurance payments
  • They maintain the property under the terms and conditions of the HECM
  • They were legally married to the borrowing spouse at the time of the loan closing, or they were engaged in a committed same-sex relationship with the borrower akin to marriage but were prohibited under state law from legally marrying the borrower at the time of the loan’s origination, but became legally married prior to the death of the borrower
  • They currently reside and resided in the property as his/her principal residence at the origination of the HECM and throughout the duration of the HECM borrower’s life
  • They have, or are able to obtain, within 90 days following the last surviving borrower’s death, good, marketable title to the property or a legal right to remain in the property for life

Peter Bell, president of the National Reverse Mortgage Lenders Association said that the industry welcomes the changes.

“As the national voice of the reverse mortgage industry, NRMLA appreciates today’s guidance from HUD that resolves longstanding concerns about the responsible treatment of non-borrowing spouses,” Bell said. “This issue has perplexed homeowners, lenders, and housing counselors for years and it is a relief to have clarity.”

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