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The FHA and HUD Update HECM Policies

New HECM Policies

The Current State of Reverse Mortgages in America

• The debt of Americans aged 65 – 74 is rising faster than any other age group, says the Federal Reserve

• 13% of reverse mortgages are underwater

• Rate of default on reverse mortgages has risen to 9.4% from 2% 10 years ago, says the CFPB

• Many heirs are not told by lenders about the options open to them after the homeowner who took out the reverse mortgage dies

• They can repay 95% of the home’s current appraised value (helpful if the home lost value after the loan was taken out)

Reverse mortgages are a popular way for older homeowners to use the equity in their homes to supplement their retirement. The FHA and HUD, the agency who administers the federally-backed Home Equity Conversion Mortgages (HECM) that comprise the lion’s share of the market, have recently issued updates and clarifications to their regulations on these financial tools in response to litigation brought by surviving spouses and heirs against some reverse mortgage lenders.

Non-Borrowing Spouses

Non-borrowing spouses were never intended to be kicked out of their homes when their borrowing spouse passed away and had not named them as a borrower. However, some lenders have done just that.

HUD recently issued Mortgagee Letter 2014-7, updating its policies on reverse mortgage regulations to protect non-borrowing spouses. This letter goes into effect on August 4, 2014. From that date going forward, non-borrowing spouses will be allowed to stay in their homes as long as they were married to the borrowing spouse at the time of closing.

The new policy is not retroactive, however. So what options are open to surviving spouses who are already facing a foreclosure? The FHA is allowing lenders to suspend foreclosures on government-backed reverse mortgages (HECM) for as long as 60 days. Lenders can also seek approval from the FHA to stop foreclosure on a loan-by-loan basis.

Foreclosing on Heirs

It is not just spouses who are having problems when a reverse mortgage borrower dies, heirs face their own issues with foreclosing lenders. Federal rules say that surviving heirs are supposed to be offered the option to settle the loan for a percent of the full amount. They also say that heirs are entitled to 30 days to make a decision on what to do with the property and six months to secure financing. Many reverse mortgage companies are instead threatening to foreclose on heirs unless they pay off the loan in full. Sometimes foreclosures are being filed mere weeks after a homeowner dies. A review of state and federal lawsuits against reverse mortgage lenders found this to be happening across the country.

Senators Barbara Boxer (D-CA) and Charles Schumer (D-NY) have asked HUD to enforce its rules that prevent foreclosure on the heirs of reverse mortgage borrowers. The Senators point out that “an increasing number of heirs are facing foreclosure on their homes after receiving inaccurate and confusing information on their options following a reverse mortgage borrower’s death.”


National Mortgage News – HECM Lenders Can Suspend Foreclosures for 60 Days

Seattle Times – Mortgage Loans Meant to Help Seniors, Push Out Their Heirs

Reverse Mortgage Daily – Senators Voice Concerns for Reverse Mortgage Heirs


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