FHA Announces Reverse Mortgage Foreclosure Alternative
A new announcement from the U.S. Department of Housing and Urban Development (HUD) and the Federal Housing Administration (FHA) could make reverse mortgages less risky for some borrowers. According to a recent press release, a new policy under the FHA’s Home Equity Conversion Mortgage (HECM) – also known as reverse mortgage – will give FHA-approved lenders the option to delay calling HECMs with eligible ‘non-borrowing spouses’ due and payable.
Essentially, this new policy makes it possible for lenders to postpone or possibly even prevent foreclosures that are normally triggered by the death of the last surviving borrower on a reverse mortgage or HECM. FHA’s new policy allows reverse mortgage lenders to assign eligible HECMs to HUD upon the death of the last surviving borrowing spouse, thereby allowing eligible surviving spouses the opportunity to remain in the home despite their non-borrowing status.
In 2014, the FHA amended its HECM policies to allow for the deferral of foreclosure, or ‘due and payable status’ for certain Eligible Non-Borrowing Spouses for case numbers assigned on or after August 4, 2014. This most recent action allows lenders to offer similar treatment for eligible HECMs and Eligible Non-Borrowing Spouses with FHA case numbers issued before August 4, 2014.
Under FHA’s new policy, lenders will be allowed to pursue claim payments for HECMs with Eligible Surviving Non-Borrowing Spouses and Case Numbers assigned before August 4, 2014 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).
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More on FHA’s Alternative to Foreclosure
By electing the Mortgage Optional Election (MOE) 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.
This should help ease many current and would-be reverse mortgage borrowers’ minds, as the thought of foreclosure or eviction from their home often makes them regret or think twice before applying for a reverse mortgage. This new action appears to be designed with the surviving non-borrowing spouse’s best interest in mind. For years, critics of reverse mortgage loans used the risk of eviction or foreclosure as a scare tactic to draw consumers away from reverse mortgages. Due to the fear of the surviving non-borrower spouse being burdened with the repayment of a reverse mortgage, many homeowners shied away from the program. However, these days the reverse mortgage business is more strictly regulated and more actions like this latest one have been enacted to protect the consumer.
That being said, a reverse mortgage is not for everyone. There are always risks involved in any mortgage loan, and a reverse mortgage is no exception. In order to be fully educated and aware of the benefits and potential risks of a reverse mortgage, speak with a licensed mortgage specialist who is familiar with the reverse mortgage process. You may also want to speak with a retirement counselor or financial advisor for additional information and guidance.
Learn more about how people are using home equity conversion mortgages for purchasing homes:
Please keep in mind that the reverse mortgage industry in constantly changing and some of the information contained on this site may not be current. Please ask a licensed reverse mortgage professional for up-to-date guidelines.