Last week, the Federal Housing Administration (FHA) announced an amendment to HECM program regulations and requirements concerning due and payable status where there is a Non-Borrowing Spouse at the time of loan closing, consistent with the authority to make such changes by the Reverse Mortgage Stabilization Act. The new HECM requirements are necessary in order to ensure the financial viability of the HECM program and the Mutual Mortgage Insurance Fund (Fund), and to comply with the statutory requirement concerning the Secretary's fiduciary duty to the Fund. HUD is now soliciting comment for 30 days on the new requirements.
A Bit of History
On August 9, 2013, the President signed into law the Reverse Mortgage Stabilization Act of 2013. This law gives FHA the authority to establish any additional or alternative requirements that the Secretary determines are necessary to improve the fiscal safety and soundness of the HECM program. This law gives FHA the authority to quickly set in place changes to improve the fiscal safety and soundness of the HECM program.
Since the inception of the HECM program in 1989, FHA has interpreted the mortgage insurance eligibility as precluding HECMs from being called due and payable until the death of the last surviving mortgagor, or other specified conditions. FHA offers a variety of ways for the estate of the deceased HECM mortgagor to satisfy the HECM loan obligation, and for many years, Non-Borrowing Spouses were able to refinance into new HECMs following the death of their mortgagor spouse in order to retain the homes. However, FHA recognizes that for some Non-Borrowing Spouses this option has become more difficult. In this Mortgagee Letter, FHA advances, prospectively only, an alternative interpretation which extends the insurance eligibility requirement that precludes loan acceleration in new HECMs to both the mortgagor and Non-Borrowing Spouse. In most cases, this will obviate the need for a Non-Borrowing Spouse to refinance the HECM loan upon the death of the mortgagor. The specific changes to, and new requirements of, the HECM program are detailed in Mortgagee Letter 2014-07.
Although this extension of mortgage insurance eligibility requirements will be part of FHA's upcoming proposed rule on HECM, FHA solicits comment in advance of the proposed rule. Comments submitted in response to this solicitation will be taken into consideration in the development of the proposed rule.