FHA extends deferred reverse mortgage foreclosures to more spouses

June 18, 2015

WASHINGTON (6/18/15)--The Federal Housing Administration (FHA) has extended options in its revised policy deferring reverse-mortgage foreclosures against eligible non-borrowing spouses that normally would be triggered by the death of the last surviving mortgage borrower.

In FHA’s revised policy under its Home Equity Conversion Mortgage (HECM) Program, issued last week, the program gives FHA-approved lenders expanded options to allow the non-borrowing spouse to remain in the home after the death of the borrower, said a Department of Housing and Urban Development (HUD) press release.

Last year FHA amended its HECM policies to allow the deferral of foreclosures, or “due and payable status,” for eligible non-borrowing spouses for case numbers assigned on or after Aug. 4, 2014.  The latest revision extends the policy to those eligible with FHA case numbers before that date.

FHA lenders will be permitted to submit claims on the expanded group of cases in accordance with the terms of the mortgagee letter by:

  • Allowing claim payment after sale of the property by heirs or the estate;
  • 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 Mortgagee Optional Election (MOE) Assignment; or
  • Foreclosing in accordance with the mortgage terms and filing an insurance claim under the FHA insurance contract as endorsed.

Under MOE, lenders may assign an eligible HECM to HUD despite the death of the last surviving borrower and regardless of its unpaid principal balance. Surviving non-borrowing spouses may remain in their home if:

  • The lender or servicer agrees;
  • The reverse mortgage was assigned an FHA case before Aug. 4, 2014;
  • They are current in making timely tax and insurance payments;
  • They maintain the property under the HECM’s terms and conditions;
  • They were legally married to the borrower when the loan was closed or, in cases where same-sex marriages were not legal when the loan originated, if they were legally married before the borrower died;
  • The property is the principal residence of the surviving spouse;
  • They obtain within 90 days after the death a good marketable title to the property or the legal right to remain in the property for life; and
  • They meet the original mortgage contract’s terms and conditions.