The Federal Housing Administration (FHA) has implemented a new rule that will give additional protections to homeowners who take out reverse mortgages.
Under the new rule, when a borrower with a reverse mortgage dies, lenders can offer the surviving ‘non-borrowing spouse’ a delay before calling the loan due and payable, thus postponing the foreclosure process.
In addition, the FHA is allowing lenders to assign eligible Home Equity Conversion Mortgages (HECMs) to the U.S. Department of Housing and Urban Development (HUD), upon the death of the last surviving borrowing spouse, thereby allowing the surviving spouse the opportunity to remain in the home despite their non-borrowing status.
What's more, lenders can offer deferral of collections on certain HECMs issued before Aug. 4, 2014, whereas before this applied only to loans assigned on or after Aug. 4.
As per a HUD press release, lenders will be allowed to pursue claim payments for HECMs with eligible surviving non-borrowing spouses and case numbers assigned before Aug. 4, 2014, as well. They can do this by 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; or 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 (the MOE Assignment).
Lenders are not required to offer these additional protections.
By electing the Mortgagee Optional Election Assignment, lenders will be permitted to modify their FHA mortgage insurance contracts to permit assignment of an eligible HECM to HUD despite the HECM being eligible to be called due and payable as a result of the death of the last surviving borrower, the release states.
To read HUD's mortgagee letter, click here.