August 28, 2017
The Department of Housing and Urban Development has issued a mortgagee letter detailing changes to the FHA loan HECM program (also known as FHA Reverse Mortgage program) effective for all case numbers assigned on or after September 19, 2017.
According to Mortgagee Letter 2017-11, the changes affect how participating lenders proceed in cases where there has been a loan default for “unpaid property charges” and the sale of property secured by an FHA HECM that has been declared due and payable.
According to the FHA/HUD official site, for cases where unpaid property charges cause a HECM loan to go into default, new guidance to lenders includes the following:
“If a Borrower is unable or unwilling to repay the Mortgagee for any Mortgagee funds advanced to pay property charges, the Mortgagee must submit a Due and Payable request within 30 calendar days of the later of:
(1) the Borrower’s response to the Mortgagee’s written notification that an obligation of the mortgage was not met; or
(2) the expiration of the Borrower’s 30-day response period to the notice.”
Policy changes to the procedure for the sale of homes secured by HECM loans declared due and payable are as follows:
“When a HECM is Due and Payable, the Borrower, Eligible Non-Borrowing Spouse, Borrower’s estate, or Borrower’s heir(s), as applicable, may sell the property for a minimum of 95% of the appraised value. This guidance announces to the industry the amount the Commissioner will accept when a Borrower, Eligible Non-Borrowing Spouse, Borrower’s estate, or Borrower’s heir(s) is satisfying a Due and Payable HECM for less than the total loan balance.”
These policy changes do not, as the mortgagee letter points out, do not add anything to the rules about non-borrowing spouses, nor do the policy changes add any rights to a HECM borrower. “Nothing in this Mortgagee Letter confers any right to a Mortgagor or a Non-Borrowing Spouse to any action on the part of HUD or the mortgagee.”
HECM borrowers unsure how these changes might affect them should discuss their concerns with the lender.
FHA HECM transactions, also known as Home Equity Conversion Mortgages, are for financially qualified borrowers age 62 or older who either own their homes outright or are very close to paying off their mortgages.
FHA HECM loans feature no mortgage payments, a cash disbursement which varies based on a variety of factors including (but not limited to) the appraised value of the home, and whether the borrower has applied for a fixed rate or adjustable rate loan. FHA HECM mortgages are paid off when the borrower dies or sells the property.