Reverse Mortgage Guidelines

The new FHA guidelines could result in a deferral of foreclosure of reverse mortgages.

At the end of January, the Federal Housing Administration (FHA) adopted new guidelines as part of its Home Equity Conversion Mortgage (HECM) programme, which allow creditors licensed by the FHA to defer enforcement action against non-borrowing spouses if the last remaining debtor dies. The most recent guidance is similar to the political changes that the FTA promised last year, but which only affected HECM borrowings taken out on or after 4 August 2014.

Updating the Directive is the latest measure of the FHA in relation to non-receiving reverse mortgage married partners - an area that has been the object of several legal proceedings in which non-receiving partners, the AARP Litigation Foundation and HUD were involved. Some reverse mortgage deals involve marital seniors choosing to exclude the younger partner from the reverse mortgage deal in order to maximise the available loan for the pair.

As a result, a non-lending spouse may be suspended when the credit becomes due and become due for payment after the lending spouse's deaths. The FHA has established the following in its Mortgagee Letter 2015-03 in accordance with the guidelines issued last year: "The new FHA policy will allow reverse mortgage creditors to grant HUD a HECM after the last remaining borrower dies, giving survive partners the option of staying in despite their non-leasing status".

It is known as the Mortgagee Optional Election (MOE). "The choice of [MOE] transfer allows creditors to amend their FHA mortgage policies to allow the transfer of a suitable HUD to HUD, even though HUD is entitled to be drawn down due and payable following the last remaining borrower's death," the FHA commented.

However, it is important to bear in mind that nothing in the FHA's notice should be interpreted as precluding a creditor from enforcing the reverse mortgage if the creditor so wishes under the conditions of the reverse mortgage.