FHA Extends Non-Borrowing Spouse ProtectionsThe United States Department of Housing and Urban Development (HUD) issued Mortgagee Letter 2019-15, in which it announced several modifications to the Mortgagee Optional Election (MOE) Assignment claim process for Home Equity Conversion Mortgages (HECMs) with FHA case numbers assigned before August 4, 2014. As background, the MOE is a foreclosure deferral program that provides FHA-approved lenders the option to allow certain non-borrowing spouses (NBSs) to remain in their homes following the death of the last surviving borrower. More specifically, the MOE provides mortgagees the ability to defer the due and payable status upon the death of the last surviving borrower and assign the HECM to HUD, where the HECM would not otherwise be assignable to HUD solely as a result of the death of the borrower (see Mortgagee Letters 2015-03, 2015-15 and 2016-05). The modifications that were outlined include:

  • Elimination of the MOE Assignment election and assessment deadlines, along with associated notification requirements;
  • Elimination of the 120-day timeframe for bringing current all property charges on a HECM that is subject to a pre-existing loss mitigation repayment plan;
  • Establishment of a 180-day reasonable diligence timeframe to initiate an MOE Assignment;
  • Elimination of the requirement for an NBS to obtain good and marketable title to the property that secured the HECM or demonstrate the legal right to reside in the property for life, and modification of related certifications and assignment criteria; and
  • Requirement for mortgagees to request information from borrowers to attempt to identify NBSs.

As an initial takeaway, MOE Assignments will no longer be time-barred. HUD has eliminated the requirement that assignments be made within 240 days of the last borrower’s date of death. Instead, mortgagees will now be subject to a reasonable diligence timeline to complete the MOE Assignment. Under the new rule, mortgagees will have 180 days from the last borrower’s date of death or the effective date of Mortgagee Letter 2019-15 (September 23, 2019), whichever is later, to complete the assignment within the reasonable diligence timeframe. MOE Assignments made after the reasonable diligence timeframe will be subject to debenture interest curtailment. More importantly, the FHA seems to be giving new life to previously time-barred claims, which should be welcome news for the reverse mortgage industry.

In light of Mortgagee Letter 2019-15, reverse mortgage investors and servicers would be well-advised to update their procedures and policies, re-evaluate previously time-barred claims, and consider any mitigating effect this may have on debenture interest curtailment.