Maggie's Reverse Mortgage Blog : May 2014

HUD Issues Rules for Reverse Mortgages Involving Non-borrowing Spouses

HECM Reverse Mortgages allow non borrowing spouses to remain in home

New rules for reverse mortgages where a spouse will not be on the loan.

On August 4, 2014, non-borrowing spouses will be able to remain in their homes even after the death of their spouse & reverse mortgage borrower. They will be able to defer the due and payable status of the loan under the same terms of the reverse mortgage.  This also applies to Reverse Mortgages for home purchase, a big plus in California and Nevada.  Below are highlights from HUD Mortgagee Letter 2014-07

Maggie O'Connell

Background Subsection 255(j) of the National Housing Act provides that a HECM that

does not contain a "Safeguard to Prevent Displacement of Homeowner,"

which defers repayment of the loan obligation until “the homeowner's death,

the sale of the home, or the occurrence of other events specified in the

regulations of the Secretary," is ineligible for FHA insurance. FHA has, since

the inception of the HECM program, interpreted this provision in its

regulations as requiring HECMs be called due and payable upon the death of

the last surviving mortgagor, the sale of the home, and other conditions,

including the failure to reside in the property and the failure to pay required

taxes and insurance.

 

FHA continues to believe that its original interpretation gives full force and

effect to the intent of the statute. Nevertheless, recent events have advanced

another possible interpretation of Subsection 255(j). This alternative

interpretation would extend the mortgage insurance eligibility requirements

concerning the safeguard to the mortgagor and any Non-Borrowing Spouse of

the mortgagor, at the time of origination.

 

Background Subsection 255(j) of the National Housing Act provides that a HECM that

does not contain a "Safeguard to Prevent Displacement of Homeowner,"

which defers repayment of the loan obligation until “the homeowner's death,

the sale of the home, or the occurrence of other events specified in the

regulations of the Secretary," is ineligible for FHA insurance. FHA has, since

the inception of the HECM program, interpreted this provision in its

regulations as requiring HECMs be called due and payable upon the death of

the last surviving mortgagor, the sale of the home, and other conditions,

including the failure to reside in the property and the failure to pay required

taxes and insurance.

 

FHA continues to believe that its original interpretation gives full force and

effect to the intent of the statute. Nevertheless, recent events have advanced

another possible interpretation of Subsection 255(j). This alternative

interpretation would extend the mortgage insurance eligibility requirements

concerning the safeguard to the mortgagor and any Non-Borrowing Spouse of

the mortgagor, at the time of origination.

 

Definitions

“Non-Borrowing Spouse” is defined as the spouse, as determined by the law

of the state in which the spouse and mortgagor reside or the state of

celebration, of the HECM mortgagor at the time of closing and who also is

not a mortgagor.

 

 “Deferral Period” is defined as the period of time following the death of the

last surviving mortgagor during which the due and payable status of a HECM

is further deferred based on the continued satisfaction of the requirements for

a Non-Borrowing Spouse under this ML and all other FHA requirements.

 

“Principal Residence” is defined as the dwelling where the mortgagor and, if

applicable, Non-Borrowing Spouse maintains his or her permanent place of

abode, and typically spends the majority of the calendar year. A person may

have only one Principal Residence at any one time. The Property shall be

considered to be the Principal Residence of any mortgagor who is temporarily

in a health care institution provided the mortgagor’s residency in a health care

institution does not exceed twelve consecutive months.

 

The Property shall be considered to be the Principal Residence of any Non-

Borrowing Spouse, who is temporarily in a health care institution, as long as

the Property is the Principal Residence of his or her mortgagor spouse, who

physically resides in the property.

During a Deferral Period, the Property shall continue to be considered to be

the Principal Residence of any Non-Borrowing Spouse, who is temporarily in

a health care institution, provided the Non-Borrowing Spouse physically

occupied the property immediately prior to entering the health care institution

and the Non-Borrowing Spouse’s residency in a health care institution does

not exceed twelve consecutive months.

 

A Non-Borrowing Spouse must comply with FHA’s requirements for

disclosure and verification of Social Security and Employer Identification

Numbers by mortgagors.

 

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.

 

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.

 

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.

 

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.

 

During any Deferral Period, the Mortgagee may not require immediate

payment in full until the end of the Deferral Period.

The Mortgagee shall notify any Non-Borrowing Spouse that the due and

payable status of the Loan is in a Deferral Period only for the amount of time

that such Non-Borrowing Spouse continues to meet all requirements

established by the Secretary and the property continues to be the Principal

Residence of such Non-Borrowing Spouse. If any conditions cease to be met,

the Deferral Period ends and the Loan immediately becomes due and payable.

The Mortgagee is not required to obtain any approval from HUD at the end

the Deferral Period to call a loan due and payable.

 

While the due and payable status may be deferred, as provided above, the

HECM is not assumable. Because of this non-assumability, the proceeds of

the HECM will not be used on behalf of or be available for disbursement to

any Non-Borrowing Spouse during a Deferral Period. The proceeds of the

HECM will be made available during a Deferral Period only for those specific

items identified in this Mortgagee Letter and the loan documents.

 

While repayment of a HECM is subject to a deferral following the death of

the last surviving mortgagor, all applicable terms and conditions of the

mortgage, loan agreement and note must continue to be satisfied, as well as

all FHA requirements. In accordance with the terms of the Loan Agreement

and Mortgage, no HECM funds may be disbursed to the mortgagor, the

mortgagor’s estate, or the Non-Borrowing Spouse once the loan is in deferred

due and payable status. The following terms are not affected during the

Deferral Period:

· The mortgage will still continue to accrue interest in accordance with the

terms of the mortgage and loan agreement.

· The mortgagee must still remit mortgage insurance payments to the FHA.

· The mortgagee is still permitted to collect servicing fees in accordance with

the terms of the mortgage.

· Except as noted in this paragraph, no funds may be disbursed during a

Deferral Period for repairs to or the maintenance of the property. If a

Repair Set-Aside was established as a condition of the HECM, which was

evidenced by the execution of a Repair Rider, funds may be disbursed from

the Repair Set-Aside during a Deferral Period for the sole purpose of paying

the cost of those repairs that were specifically identified prior to origination

as necessary to the insurance of the HECM. Additionally, such repairs may

only be paid for using funds from the Repair Set-Aside if the repairs are

satisfactorily completed during the time period established in the Rider. No

unused funds may be disbursed.

· The mortgagee may still request that the loan be assigned to HUD after

death of the mortgagor if the loan balance reaches 98% of the Maximum

Claim Amount, provided the HECM is not eligible to be called due and

payable for any other reason and all other assignment criteria are met.

 

The mortgagor maintains the ability to sell the property, whether or not the

mortgage is due and payable, for at least the lesser of the outstanding balance

or the appraised value. Further, if the mortgage is due and payable, the

mortgagor maintains the ability to sell the property for at least the lesser of the

outstanding balance or 95% of the appraised value or present the mortgagee

with a deed-in-lieu.

 

If the mortgage is due and payable by reason of the last surviving mortgagor’s

death, the mortgagor’s estate and/or the mortgagor’s heir(s) have the ability to

“sell” the property for at least the lesser of the outstanding balance or 95% of

the appraised value. In order for any Deferral Period to remain in effect after

the last surviving mortgagor’s death, any Non-Borrowing Spouse must meet

all requirements, which include establishing legal ownership to the property

or an ongoing legal right to reside in the property. Nothing in this ML, or the

existence of a Non-Borrowing Spouse under this ML, may be construed as

interrupting or interfering with the ability of the mortgagor or the mortgagor’s

estate or heir(s) to dispose of the property if they are otherwise legally entitled

to do so.

 

Where a HECM mortgagor has identified a Non-Borrowing Spouse, the

mortgagee must base the Principal Limit on the age of the youngest

mortgagor or Non-Borrowing Spouse.

Mortgagees will be required to use Factor Tables based on the age of the

youngest Mortgagor or Non-Borrowing Spouse, if applicable. HUD is

developing new Factor Tables and will release them through Mortgagee

Letter prior to the effective date of this Mortgagee Letter.

 

The mortgagee must annually determine whether the property remains the

Principal Residence of at least one mortgagor and must require the mortgagor

to annually certify to his or her continued residence in the property.

Where a Non-Borrowing Spouse has been identified, for HECM loans with a

case number issued on or after the effective date of this ML, the mortgagee

must obtain an additional certification from the HECM mortgagor spouse

confirming that his/her Non-Borrowing Spouse remains his/her spouse and

his/her Non-Borrowing Spouse continues to reside in the property as his/her

Principal Residence.

If a HECM mortgagor with a Non-Borrowing Spouse has died, the Mortgagee

is required to obtain this annual certification from the Non-Borrowing Spouse

of such mortgagor.

If a Non-Borrowing Spouse ceases to be married to his/her HECM mortgagor

spouse for any reason other than death or fails to reside in the property as

his/her Principal Residence, the deferral of a due and payable status that

would prevent the displacement of such Non-Borrowing Spouse will no

longer be in effect.

 

 

Comment balloon 0 commentsMaggie O'Connell • May 03 2014 03:33PM
HUD Issues Rules for Reverse Mortgages Involving Non-borrowing Spouses
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New rules for reverse mortgages where a spouse will not be on the loan. On August 4, 2014, non-borrowing spouses will be able to remain in their homes even after the death of their spouse & reverse mortgage borrower. They will be… more