Recently the FHA and HUD announced further changes to the FHA Home Equity Conversion Mortgage or HECM loan program. There have been a number of alterations and adjustments to the FHA HECM loan program in the last year or so, and the new changes further clarify the rules for certain aspects of the HECM program. In this case many of the rule changes have to do with the procedures for declaring a HECM loan due and payable.
According to FHA Mortgagee Letter 2015-10, “For HECMs that are due and payable, the Due Date is the date when:
–the mortgagee notifies the Secretary that the mortgage became due and payable without HUDs approval; or
–the Secretary approves the mortgagees request to call the mortgage due and payable.
For HECMs with a Case Number issued on or after August 4, 2014, where there is a deferral of Due and Payable status for an Eligible Non-Borrowing Spouse, the Due Date is the date when the Deferral Period ends.”
But it’s not quite as simple as just determining that the HECM loan is due. There are several reasons why a HECM loan could become due. One is the death of the borrower. In these cases, the new rules say:
“When a mortgage is due and payable as a result of a mortgagors death or a Deferral Period ends as a result of an Eligible Non-Borrowing Spouses death, the mortgagee may accept verbal notification of the death from the heirs or estate for Due and Payable purposes. Mortgagees must still obtain documentation of the death of the mortgagor or Eligible Non-Borrowing Spouse for foreclosure and claim purposes.”
But what about cases where the death of the borrower is not the reason for the HECM loan becoming due–or becoming at risk of same?
“When HUDs approval is required, the mortgagee must provide the mortgagor(s) with a Due and Payable Notice stating that the mortgagor has 30 days to notify the mortgagee of their intention to either:
–satisfy the HECM;
–sell the property for at least 95% of the appraised value;
–provide the mortgagee with a Deed in Lieu of foreclosure; or
–correct the matter which resulted in the mortgage becoming due and payable.”
FHA loan rule changes include a requirement that the Due and Payable Notice must be sent to the mortgagor within 30 days of receiving HUDs approval to call the HECM due and payable. “Mortgagees may vary the actual structure of this Notice, but it must:
1. state that an obligation of the mortgagor has not been met;
2. state that failure of the mortgagor to comply with the terms of the HECM has resulted in the loan becoming due and payable;
3. provide notice of the availability of Housing Counseling; and
4. provide notice of any available loss mitigation options the mortgagee may offer.”
There are also new rules for HECM loans with non-borrowing spouses that may be eligible for a “deferral period” following the death of the borrower.
“Within 30 days of receiving notice of the last surviving mortgagors death, the mortgagee must provide to the Eligible Non-Borrowing Spouse a notice including information on:
–the eligibility requirements for a Deferral Period;
–the conditions and requirements for the continuation of a Deferral Period; and
–the ability to cure the default (due to failure to maintain the property or failure to pay property charges) in order to be in compliance with the requirements for the continuation of a Deferral Period.
When a Deferral Period ends because an Eligible Non-Borrowing Spouse has become an Ineligible Non-Borrowing Spouse, the mortgagee must notify the Non-Borrowing Spouse, within 30 days of the end of the Deferral Period, that:
–the Deferral Period has ended;
–the HECM is due and payable; and
–the mortgagors estate, heir, or other party with authority to dispose of the property may either satisfy the HECM, sell the property for at least the lesser of the outstanding principal balance or 95% of the appraised value, or provide the mortgagee with a Deed in Lieu of foreclosure.”
These are just some of the changes that affect the FHA Home Equity Conversion Mortgage loan process. We’ll cover more changes in future blog posts.
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