July 16, 2014
Recently the FHA and HUD updated requirements to the FHA Home Equity Conversion Mortgage (HECM) program to include something known as a deferral period for surviving non-borrowing spouses of those with HECM loans.
What does this mean? According to the FHA official site, “For any HECM with a case number issued after the effective date of this Mortgagee Letter, in order to be eligible for FHA insurance, the HECM must contain a provision deferring the due and payable status that occurs because of the death of the last surviving mortgagor, if a mortgagor was married at the time of closing and the Non-Borrowing Spouse was identified at the time of closing.”
“Specifically, the HECM documents must contain a provision deferring due and payable status until the death of the last surviving Non- Borrowing Spouse or until another listed event occurs.”
Who qualifies under this deferral period as a non-borrowing spouse? According to the FHA, “In order for the Deferral Period to apply to a Non-Borrowing Spouse, the Non-Borrowing Spouse must:
1. Have been the spouse of a HECM mortgagor at the time of loan closing and have remained the spouse of such HECM mortgagor for the duration of the HECM mortgagor’s lifetime;
2. Have been properly disclosed to the mortgagee at origination and specifically named as a Non-Borrowing Spouse in the HECM documents; and 3. Have occupied, and continue to occupy, the property securing the HECM as the Principal Residence of the Non-Borrowing Spouse.”
Those are important provisions to be aware of, and the terms of the deferral period are specifically defined in FHA Mortgagee Letter 2014-07, as follows:
“In the event the last surviving mortgagor predeceases a Non-Borrowing Spouse, the due and payable status will be deferred for as long as a Non- Borrowing Spouse continues to meet all the qualifying attributes stated in the above section. In addition, such Non-Borrowing Spouse must satisfy and continue to satisfy the following:
1. Within ninety days from the death of the last surviving HECM mortgagor, establish legal ownership or other ongoing legal right to remain (e.g., executed lease, court order, etc.) in the property securing the HECM;
2. After the death of the last surviving mortgagor, ensure all other obligations of the HECM mortgagor(s) contained in the loan documents continue to be satisfied; and
3. After the death of the last surviving mortgagor, ensure that the HECM does not become eligible to be called due and payable for any other reason.
Finally, the new HECM loan rules for these situations also explains what happens if the non-borrowing surviving spouse fails to meet the qualifications listed above:
“Should a Non-Borrowing Spouse fail to meet any of the qualifying attributes or should any of the requirements for deferral cease to be met, the Deferral Period of the due and payable status shall cease and the HECM will become immediately due and payable as a result of the death of the last surviving mortgagor.”
Do you have questions about FHA home loans? Ask us in the comments section. You can get information about applying or getting pre-approved for an FHA loan at FHA.com, a private company and not a government website.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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