FHA Offers HECM Foreclosure Relief to More Non-Borrowing Spouses

The Federal Housing Administration will make foreclosure protections available to a larger number of surviving spouses of deceased reverse mortgage borrowers.

Last year, the FHA amended its Home Equity Conversion Mortgage policies to delay a loan from going into foreclosure for certain non-borrowing spouses with case numbers assigned on or after Aug. 4, 2014. A Jan. 29 mortgagee letter allows for "similar treatment" of FHA case numbers issued before August 4, 2014, according to the Department of Housing and Urban Development.

The policy change effectively postpones a foreclosure when the loan comes due upon the death of the last surviving borrower — allowing eligible surviving spouses to remain in the home, despite the fact they were not named in the loan documents.

While the FHA is opening up eligibility for the foreclosure deferment to additional non-borrowing spouses, the FHA leaves it up to servicers' discretion whether to offer it, based in part on a servicer's assessment of whether individual cases meet HUD's criteria.

When a servicer elects to provide a non-borrowing spouse with a deferment, the loan's mortgage insurance contract is modified to permit assignment of the HECM to HUD, despite the loan being eligible for due and payable status because the last surviving borrower has passed away.

The foreclosure protections stem largely from lawsuits filed by non-borrowing spouses who have received legal representation from the AARP Foundation. The retroactive policy was widely expected, although there was debate about what form it would ultimately take.