June 22, 2015
Last week we discussed some recent changes to FHA HECM loan policies. There have been a number of updates and changes to FHA HECM loan policy, especially in the areas that affect non-borrowing spouses. If an FHA borrower applies for a Home Equity Conversion Mortgage and has a spouse that is not a fellow FHA borrower, can that spouse remain in the home after the FHA borrower dies?
There may be good news for these non-borrowing spouses depending on circumstances and the lender.
According to an FHA Mortgagee Letter, HUDNo.15-0753, “Under FHAs revised policy, lenders will be allowed to proceed with submitting claims on HECMs with Eligible Surviving Non-Borrowing Spouses and Case Numbers assigned before August 4, 2014 in accordance with the terms of the mortgagee letter by:
–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 solely as a result of the death of the borrower. (The Mortgagee Optional Election Assignment)
–Allowing claim payment following sale of the property by heirs or estate; or
–Foreclosing in accordance with the terms of the mortgage, and filing an insurance claim under the FHA insurance contract as endorsed.”
When the lender selects the Mortgagee Optional Election Assignment (MOE), FHA loan rules have been updated to include the following guidance:
“…lenders will be permitted assign an eligible HECM to HUD despite the death of the last surviving borrower and regardless of the loans unpaid principal balance. Following the death of their borrowing spouse, non-borrowing spouses may remain in their home under the following conditions:
–The lender or servicer agrees;
–The reverse mortgage was assigned an FHA case number prior to August 4, 2014;
–They are current in making timely tax and insurance payments;
–They maintain the property under the terms and conditions of the HECM;
–They were legally married to the borrowing spouse at the time of the loan closing, OR they were engaged in a committed same-sex relationship with the borrower akin to marriage but were prohibited under state law from legally marrying the borrower at the time of the loans origination, but became legally married prior to the death of the borrower;
–They currently reside and resided in the property as his/her principal residence at the origination of the HECM and throughout the duration of the HECM borrowers life;
–They have, or are able to obtain, within 90 days following the last surviving borrowers death, good, marketable title to the property or a legal right to remain in the property for life; and
–They meet all other terms and conditions of the original mortgage contract.”
As you can see, much depends on circumstance and the willingness of the lender; that said, these provisions do now offer finance companies alternatives to simply declaring the HECM loan due and payable upon the death of the original borrower. Those who anticipate becoming surviving non-borrowing spouses should discuss their options with the lender as soon as possible to see what the lender might be willing to do in the event that the HECM borrower dies.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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