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FHA Revises Reverse Mortgage Rules for Surviving Spouses

by devteam June 15th, 2015 | Share

The Federal Housing Administrationrn(FHA) has revised its policy for so-called reverse mortgages, expanding optionsrnfor surviving spouses to remain in their homes after the death of the loan’srnborrower.  The new policy echoes optionsrnextended to a limited number of such spouses last year.</p

Under old rules governing Home EquityrnConversion Mortgages (HECMs) the death of a spouse who was the sole borrower onrnthe mortgage triggered the due and payable status clause of the mortgage and couldrnalso set off the processes of foreclosure.  This often came as a surprise to the survivingrnspouse who may have assumed he or she could stay in the home during thernremainder of his or her own life. rnIndividual cases of hardship also generated a lot of bad publicity forrnthe program.</p

In 2014 FHA amended its HECM policies inrnorder to allow lenders to defer foreclosures or the due and favorable statusrnfor eligible non-borrowing spouses with mortgages for which case numbers were issuedrnafter August 4, 2014.  FHA’s action lastrnweek will make that option available for mortgages with case numbers assignedrnbefore that date. </p

Lenders will have to option of either:</p<ul type="disc"

  • Electing to assign the mortgage to the Department ofrn Housing and Urban Development (HUD) upon the death of the last survivingrn borrower, where the HECM would not otherwise be assignable to FHA solelyrn as a result of the death of the borrower. (The Mortgagee Optional Electionrn Assignment or MOE)</li
  • Allowing claim payment following sale of the propertyrn by heirs or estate; or</li
  • Foreclosing in accordance with the terms of thern mortgage, and filing an insurance claim with FHA. </li</ul

    If lenders elect to exercise the MOE arnnon-borrowing surviving spouse may remain in the home if they meet the termsrnand conditions of the original mortgage and: </p<ul type="disc"

  • The lender or servicer agrees;</li
  • An FHA case number was assigned prior to August 4,rn 2014;</li
  • Tax and insurance payments are made in a timely mannerrn and property is properly maintained;</li
  • The borrowing and non-borrowing spouse were legallyrn married at the time of the loan closing or were in a committed same-sexrn relationship in a state that did not permit their legal marriage at loanrn origination but became legally married prior to the death of the borrower;</li
  • The property was the surviving spouses principalrn residents at origination of the loan and remained so throughout thern remainder of the borrower’s life. </li
  • The surviving spouse has or is able or is able torn obtain, within 90 days following the last surviving borrower’s death,rn good, marketable title to the property or a legal right to remain in thern property for life. </li</ul

    The new policy becomes effectivernimmediately.

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    • About the Author

    devteam

    Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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