The Federal Housing Administration (FHA) has revised its policy for so-called reverse mortgages, expanding options for surviving spouses to remain in their homes after the death of the loan's borrower. The new policy echoes options extended to a limited number of such spouses last year.
Under old rules governing Home Equity Conversion Mortgages (HECMs) the death of a spouse who was the sole borrower on the mortgage triggered the due and payable status clause of the mortgage and could also set off the processes of foreclosure. This often came as a surprise to the surviving spouse who may have assumed he or she could stay in the home during the remainder of his or her own life. Individual cases of hardship also generated a lot of bad publicity for the program.
In 2014 FHA amended its HECM policies in order to allow lenders to defer foreclosures or the due and favorable status for eligible non-borrowing spouses with mortgages for which case numbers were issued after August 4, 2014. FHA's action last week will make that option available for mortgages with case numbers assigned before that date.
Lenders will have to option of either:
- Electing to assign the mortgage to the Department of Housing and Urban Development (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 or MOE)
- 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 with FHA.
If lenders elect to exercise the MOE a non-borrowing surviving spouse may remain in the home if they meet the terms and conditions of the original mortgage and:
- The lender or servicer agrees;
- An FHA case number was assigned prior to August 4, 2014;
- Tax and insurance payments are made in a timely manner and property is properly maintained;
- The borrowing and non-borrowing spouse were legally married at the time of the loan closing or were in a committed same-sex relationship in a state that did not permit their legal marriage at loan origination but became legally married prior to the death of the borrower;
- The property was the surviving spouses principal residents at origination of the loan and remained so throughout the remainder of the borrower's life.
- The surviving spouse has or is able or is able to obtain, within 90 days following the last surviving borrower's death, good, marketable title to the property or a legal right to remain in the property for life.
The new policy becomes effective immediately.