A new policy issued by the Federal Housing Administration (FHA) on Thursday under its Home Equity Conversion Mortgage (HECM) Program will allow reverse mortgage lenders to delay calling HECMs from a surviving non-borrowing spouse following the death of the last surviving borrower.
Such a delay on collection of the HECM from the surviving non-borrowing spouse would postpone the foreclosure process normally triggered by the last surviving borrower's death. Under the new policy, reverse mortgage lenders have the option of assigning the HECM to the U.S. Department of Housing and Development (HUD), thus allowing that spouse to remain in the home despite his or her non-borrowing status.
FHA amended the policies for HECM to allow for deferral of "due and payment status" for eligible non-borrowing spouses, hence deferring the foreclosure process, for FHA case numbers assigned on or after August 4, 2014. Thursday's policy announcement allows for similar treatment of eligible HECMs and surviving non-borrowing spouses for case numbers issued before August 4, 2014.
Lenders will be allowed to pursue claim payments under FHA's new policy on HECMs and eligible surviving non-borrowing spouses for case numbers assigned before August 4, 2014, by: allowing claim payment following the heirs' or estate's sale of the property; foreclosing on the property within the terms of the mortgage, then filing an insurance claim under FHA insurance contracts as endorsed; or electing the Mortgagee Optional Election (MOE) Assignment, or assigning the HECM to HUD upon the passing of the last surviving borrower.
Lenders will be permitted to modify the FHA mortgage insurance contracts when they choose the MOE assignment – thus permitting assignment of eligible HECMs to HUD even though the HECM can be called due to the fact that there is no surviving borrower.
According to the mortgagee letter issued by HUD, the new policy is effective immediately and assignments made pursuant to the letter will be accepted starting on June 1, 2015.