The Department of Housing and Urban Development directed its reverse mortgage lenders and servicers to halt foreclosures on the borrower's spouse, according to a letter sent out last week. The American Association of Retired Persons sued HUD in March on behalf of three spouses of reverse mortgage borrowers. HUD changed a previous policy from 1989, changed in 2008, that said than an heir, which includes a surviving spouse, must pay the full mortgage balance to keep the home, even if it exceeds the value of the property. The plaintiffs faced foreclosure and claimed the HUD rule made in 2008 violated existing contracts. HUD notified the attorneys last week that the lenders halted the foreclosures against their clients, pending the disposition of their lawsuit. A reverse or Home Equity Conversion Mortgage allows the borrower, who must be at least 62 years old, to convert a portion of the equity in the home for cash. No repayment is required until the borrower no longer uses the home as a principal residence or does not meet the obligations of the loan, often in the event of death. HUD made a rule in 1989 that stated the borrower or the heirs would never owe more on the reverse mortgage than the home was worth, according to the AARP suit. "We are very pleased with HUD’s decision to withdraw the mortgagee letter – it was the right thing to do," said Jean Constantine-Davis, a senior attorney with AARP. "We hope that HUD will now make this remedy available for all persons in the same circumstances." Steven Skalet of Mehri & Skalet said they are still working on the details of the HUD reversal. An issue remains over whether or not HUD will recognize the protection of a non-displacement provision in the HECM rules stating the spouse cannot be arbitrarily displaced from the home until the loan termination date. "This is terrific for surviving spouses and families of reverse mortgage borrowers," Skalet said. "We still need to understand the details and where HUD is going on the issues we have raised, but we are pleased by this first significant step." HUD does not comment on pending litigation, but future guidance is expected in the future according to the letter. Write to Jon Prior. Follow him on Twitter @JonAPrior.