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Reverse Mortgages: Surviving Spouses Can Now Stay In Homes

In important news, HUD has ruled that surviving spouses in homes that have reverse mortgages can now stay in the homes.

Surviving spouses of borrowers who take out reverse mortgages will be allowed to stay in their homes even if they aren’t named in loan documents. The Department of Housing and Urban Development says the new guidelines take effect for new loans issued on Aug. 4, but it doesn’t impact loans made prior to that date.

Previously, spouses who weren’t on loan documents were required to repay the reverse mortgage when the borrower died. The new guidelines come in response to a federal court case in Washington, D.C., in which non-borrowing spouses facing foreclosure are challenging HUD in order to say in their homes.

HUD says that for many years these spouses were able to refinance the reverse mortgages upon the death of the borrower in order to retain the home. The FHA says that’s become more difficult in recent years and left the spouses with few viable options if they wanted to keep the home they lived in with their spouse.

National Mortgage News reported that HUD agreed in a court hearing to suspend foreclosures for 60 days while it developed a policy letter.

HUD says FHA has no authority to alter the existing legally binding contracts that govern such current and older reverse mortgages known as a Home Equity Conversion Mortgage, which are insured by HUD. Those homeowners 62 and older get cash in exchange for equity in their homes. The loan isn’t repaid until the borrowers die, sell or move out.

For many years, non-borrowing spouses were able to refinance HECMs upon the death of their mortgagor spouses in order to retain the homes. However, FHA recognizes that for some non-borrowing spouses this option has become more difficult. This has, in many cases, left few viable options for non-borrowing spouses if they wanted to remain in the home they had previously shared with their spouse.

HUD has faced challenges in courts in recent months. In 2013, a federal court ruled that HUD regulations in which banks can foreclosure on non-borrowing surviving spouses or face them to pay off the loans, contradicts federal law. Earlier this year, a group of spouses from Nevada, California, Florida and Massachusetts filed a class action lawsuit arguing that HUD didn’t protect them as required under federal law from foreclosure and getting removed from their homes.

The new rules require that a non-borrowing spouse establish within 90 days of the death of the borrower legal ownership and the right to remain in the home and undertake the responsibility to meet the obligations of the reverse mortgages, including paying taxes and insurance. It permits the servicers to declare the loan due if the requirements aren’t met.

The spouse won’t get the benefits of any reverse mortgage payments that the borrower received, but the loan continues to accrue interest.

HUD says it will seek public comments on the change. The new guidelines are available at http://portal.hud.gov/hudportal/documents/huddoc?id=14-07ml.pdf

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