June 19, 2015
After many changes to FHA Home Equity Conversion Mortgage (HECM) rules, another round of changes has been announced. The FHA HECM loan program has probably changed more in the last year or so than any other single-family FHA loan program, and many of the changes we’re seeing now address important issues related to what happens when the primary borrower dies and/or the HECM loan is about to be declared due in full.
According to HUDNo.15-073, the FHA has “issued a revised policy under its Home Equity Conversion Mortgage (HECM) Program giving FHA-approved lenders expanded options to allow eligible non-borrowing spouses the potential to remain in their home following the death of the last surviving borrower.”
In 2014 there were changes in FHA 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. Todays action allows lenders to offer similar treatment for eligible HECMs and Eligible Non-Borrowing Spouses with FHA case numbers issued before August 4, 2014.”
What does that mean for those affected by the new rule changes? According to the newly revised FHA loan policy, participating FHA lenders issuing HECM loans will be able to submit claims, “on HECMs with Eligible Surviving Non-Borrowing Spouses and Case Numbers assigned before August 4, 2014 in accordance with the terms of the mortgagee letter by:
–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 solely as a result of the death of the borrower. (The Mortgagee Optional Election Assignment)
–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 under the FHA insurance contract as endorsed.”
Lenders who select the Mortgagee Optional Election Assignment (MOE) mentioned above are allowed to “assign an eligible HECM to HUD despite the death of the last surviving borrower and regardless of the loans unpaid principal balance.” FHA rules add that now, in the event of the death of the borrowing spouse, a non-borrowing spouse is permitted to stay in the home with a certain set of conditions. We’ll review those conditions in a future blog post.
You can read the full text of the FHA HECM loan rule changes via this downloadable PDF provided by the FHA/HUD.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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