Non-borrowing spouses of reverse mortgage borrowers will now have expanded opportunities to remain in their homes under newly revised guidelines released today by the Federal Housing Administration (FHA).
Last year, the FHA amended its Home Equity Conversion Mortgage (HECM) policies to allow lenders to defer foreclosure for certain eligible non-borrowing spouses for HECM case numbers assigned on or after August 4, 2014.
Under the FHA’s revised policy, issued Friday via Mortgagee Letter 2015-15, lenders will be allowed to offer similar treatment to these eligible non-borrowing spouses with HECM case number assigned before Aug. 4, 2014.
Per the guidelines laid out in the mortgagee letter, lenders will also be allowed to proceed with submitting claims on HECMs with eligible surviving non-borrowing spouses and FHA case numbers assigned before Aug. 4, 2014 via several ways.
One way is by electing to assign the HECM to the Department of Housing and Urban Development (HUD) upon the death of the last surviving borrower, where the HECM would not otherwise be assignably to FHA solely as a result of the death of the borrower, also known as The Mortgagee Optional Election Assignment (MOE).
A lender may also proceed by allowing claim payment following the sale of the property by heirs or the estate, or by foreclosing in accordance with the terms of the mortgage and filing an insurance claim under the FHA insurance contract as endorsed, FHA stated in a release.
By electing the MOE, lenders will be allowed to assign an eligible HECM to HUD despite the death of the last surviving borrower and regardless of the loan’s unpaid principal balance.
However, there are several conditions where the non-borrowing spouse may remain in their home following the death of their borrowing spouse, FHA notes.
Such conditions are dependent upon the agreement by the lender or servicer; if the reverse mortgage was assigned an FHA case number before Aug. 4, 2014; if the non-borrowing spouse is current in making timely tax and insurance payments; and if they maintain the property under the terms and conditions of the HECM.
Non-borrowing spouses may also remain living in the home on the condition that they were legally married to the borrowing spouse at the time of the reverse mortgage’s loan closing, or if they were engaged in a committed same-sex relationship with the borrower akin to marriage but 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, FHA stated.
Friday’s action is the latest move from lawmakers on the hotly contested issue of reverse mortgage non-borrowing spouses.
Late last month, Congresswoman Maxine Waters (D-CA) called for HUD to provide greater transparency for seniors participating in the HECM program, arguing that while HUD has taken a number of steps to address this issue has “fallen short of providing meaningful relief” in its decision-making process.
FHA previously issued Mortgagee Letter 2015-03, which provided guidelines related to the MOE, however, the agency later revoked those guidelines in early May through the release of Mortgagee Letter 2015-12.
“During this review, FHA determined that it is possible for it to make the MOE Assignment claim option available to mortgagees without requiring satisfaction of either the Factor Test or the Principal Limit Test,” FHA stated in ML 2015-15. “FHA determined that it will continue to impose the other requirements and conditions set forth for the MOE Assignment and as such, these requirements and conditions are set forth below and will be put in place as originally published.”
The guidance was met with support from the National Reverse Mortgage Lenders Association (NRMLA).
“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,” said NRMLA President Peter Bell in an emailed statement to RMD. “This issue has perplexed homeowners, lenders, and housing counselors for years and it is a relief to have clarity.”
AARP declined to comment until further review of the mortgagee letter.
View Mortgagee Letter 2015-15.
Written by Jason Oliva
