FHA Rescinds Rule for Foreclosure on HECM Surving Non-Borrowing Spouses

The Federal Housing Administration (FHA) has issued a memo announcing the rescinding of a mortgagee letter written in January that would have allowed reverse mortgage lenders the option of delaying foreclosure proceedings on surviving non-borrowing spouses.

Mortgagee Letter 2015-12, issued by HUD on Thursday, announced the immediate rescinding of Mortgagee Letter 2015-03, originally published by HUD on January 29. The move came just one day after FHA published the responses to comments it had solicited regarding ML 2015-03 during a four and a half week period from February 6 to March 9.

The amendments to HUD's Home Equity Conversion Mortgage (HECM) program spelled out in ML 2015-03 in January gave reverse mortgage lenders the option of assigning an HECM to HUD for case numbers assigned before August 4, 2014, following the death of a the last surviving borrower, known as the Mortgagee Optional Election, or MOE. Lenders also would have had the option to assign eligible to HECMs to HUD upon the death of the last surviving borrower, allowing a non-borrowing spouse to remain in the home despite not being named on the title.

Under new guidelines, reverse mortgage lenders will have the option to delay the beginning of foreclosure proceedings on a non-borrowing spouse in certain cases for up to 60 days for HECMs with case numbers issued prior to August 4, 2014. The extension will also give lenders time to comply with reasonable diligence on HECMs. Lenders have the option of exercising this option effective immediately.

"Mortgagees may immediately elect to begin using this extension," FHA said in the memo. "Mortgagees have full discretion to elect this extension. The request for an extension is not conditioned on the continued pursuit of foreclosure or the marketing of the property. The mortgagee’s request for an extension is effective when made and FHA will not be providing any specific approval for this extension."

The extension will be effective upon request and does not require FHA approval. Mortgagees must prepare a detailed Extension Request on their company letterhead. The request must include the signature of an authorized loan servicing manager. Click here for HUD's online knowledge base for answers to frequently asked questions.