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What Happens When a Reverse Mortgage is Assigned to HUD
We received a notice from reverse mortgage that the loan is being assigned to HUD they also gave the name of company that would be handling it. I looked company up and they have horrible complaints one main one being that the heirs do everything required to settle home and this company just foreclosures the house before they can do anything about it! I am beneficiary of my mom’s house she has the house in a trust and a will, I am beneficiary we put house in trust to avoid probate. What recourse does a person have if you do everything to settle loan and they just steal the house from you! The complaints are numerous people are lied too and get the runaround. Never get the payoff amount. Phone calls not returned. It’s scaring me to death what I may have to endure. There’s no way I’m giving up this house to them there’s plenty of equity to sell the house and pay off the loan balance with the reverse mortgage and I have been communicating with the other company now they referred me to another company. I don’t want to hire an attorney if I’m doing everything I’m supposed to do in a required and they refuse to work with me because they want to foreclose on the home what is my recourse? Who can I complain to? who is on our side and why is this company still in business? sounds like a horror story to me. PS. My mother who has reverse mortgage she is still alive she doesn’t have much longer I don’t think but I’m just wondering what’s going to happen now and why do they make it so difficult for people to settle the loan. Thank you! – Laura K.
Why Lenders Assign Reverse Mortgages to HUD
Let’s go over a little background first.
Reverse mortgages are typically only assigned to HUD after the loans reach a very high loan amount in relation to the original value or maximum claim amount (there are other reasons as stated in the HUD manual, but this is the most common reason for assignment).
Many of the homes that reach this point have little to no equity remaining in the property because borrowers have used all the funds available to them, and the interest accrues on the loan. This is the purpose of the loan.
It allowed the borrowers to live in the property payment-free. If the borrowers can afford to make monthly payments to keep equity in the property, they can with a reverse mortgage as well but most do not and that is their reason for getting the reverse mortgage in the first place, so that they can live in the home without having to make a payment.
Once the borrowers are no longer living in the home, HUD’s servicer will move quickly toward foreclosure to minimize any losses if they feel that heirs are not actively pursuing loan payoff.
When are Reverse Mortgages are Assigned to HUD?
Because most of the loans that are assigned to HUD are lower equity situations, the longer they wait the more of a loss they will sustain. They would much rather have heirs pay the loans off, but they know this is not the typical outcome when there is not a lot of equity in the property.
HUD will contact an appraiser to perform an appraisal and if it is clear there is no equity in the property, they see that no one has made any attempt to change the title from the deceased borrowers, it’s pretty clear that no one is making any positive steps to repay the loan in a timely manner, if at all.
Reverse mortgage lenders and servicers have been sued for giving information to the wrong people without borrower consent. They don’t know who they can release information to unless they have a written consent from the borrower, a court order or a trust that has a successor trustee who has had the trust certified.
Otherwise, if they just start working with just anyone who contacts them and claims to be the heir, they can be subject to civil penalties and lawsuits if anyone is injured as a result.
Therefore, if they receive a letter or call from someone who does not have the proper clearance to act on behalf of the borrower, they cannot release any information at all. It’s not the lender or HUD being hard-nosed, it is the law and the result of lawsuits.
So, what you can do is make sure that all your ducks are in a row in advance. I have overseen a few reverse mortgage payoff’s (including settling my own mother’s loan just this year) and they all went off without a hitch. But here is what you need to do.
Setup Authority with the Servicer
Make sure that you have the authority to speak with the lender on behalf of the loan. This can be done now by having parents sign an authorization for the lender/servicer to speak with heirs they intend to have working on their behalf on all things relating to the loan. If they have this authorization in advance, then the lender can talk to them. This applies to all heirs.
It’s too late to have mom and dad sign an authorization after they pass or become incapacitated.
Is there a Trust Present?
Next, if mom has a family trust , talk to your estate attorney now and devise a plan to have the certification of trust completed as soon as possible after mom passes. If mom is incapacitated now, the trust probably contains language that you can be moved from successor trustee to trustee now so that you do not have to wait.
Either way, when mom passes, you will already be the new trustee with power to sell the property at that time or take out a new loan and there will be no delay.
Neither HUD nor the servicer want to foreclose . But they cannot speak to anyone who is not authorized to speak to them on behalf of the borrower or can show proof that they are the new owner and that usually takes time if you have to go through a probate or if heirs don’t take immediate steps to change title after the borrowers pass.
Then these folks often just start trying to contact the lender and the lender can’t tell them anything and they get frustrated and post the negative comments you have read. If you have taken the necessary steps to change the title and have the trust certification to show that you are now the trustee of the trust, the servicer can and will work with you to get the home sold.
If you are not a recognized individual as being authorized to communicate and act on the borrowers’ behalf and the title is still in the borrower names (the estate) and no moves are being made to change that, eventually they will begin a foreclosure action in accordance with the terms of the loan, especially if there is no equity left in the property to minimize losses.
I think you need to take the steps outlined above to get a signed authorization to work with the lender from mom now if she is capable or move to have yourself put into the position of Trustee of the trust if you are the successor trustee. Now that is my advice about making the reverse mortgage easier to deal with.
Talk to an Attorney
As always though, I strongly suggest that you speak to your estate attorney that did the will and trust and get legal advice on any tax or other estate implications before you do anything.
I think you will find that it is not anywhere near as difficult as you have been led to believe if you make sure you have your title and authorizations covered in advance.
ARLO recommends these helpful resources:
- Reverse Mortgage After Death: What Heirs & Family Must Know
- HUD Servicing Manual .PDF (4235.1 REV-1 )
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Protections for reverse mortgage borrowers
If the covid-19 pandemic has made it harder for you to meet your reverse mortgage loan responsibilities, you're not alone. fortunately, there are options and resources available to you..
The responsibilities for Home Equity Conversion Mortgages (HECMs), the most common type of reverse mortgages, include occupying your home as your primary residence, paying your property taxes or homeowners’ insurance on-time, and keeping your home in good condition.
Usually, if you are unable to meet these loan obligations your lender or loan servicer will notify you that your loan is “due and payable,” meaning it may be in default and foreclosed upon. The lender or loan servicer may also call a reverse mortgage loan due and payable when the reverse mortgage borrower dies .
If you are a reverse mortgage borrower affected directly or indirectly by COVID-19, the CARES Act and guidance from the US Department of Housing and Urban Development (HUD) can protect you from default and foreclosure if you have an HECM reverse mortgage.
Here’s what you need to know:
As a borrower, you may ask your lender for an extension.
Ask your loan servicer to delay calling your loan due and payable. Upon your initial request, your lender or loan servicer must delay calling your loan due and payable for up to six months. You do not need to provide any documentation to your lender or loan servicer to receive an extension. During the extension period, your lender or loan servicer cannot charge any late fees and penalties. Interest will continue to accrue.
If you need more time, additional extensions may be available for up to a total of 12, 15, or 18 months, depending on when you got your initial extension. See HUD’s table on extension timelines for more details.
No extension period may extend beyond September 30, 2022 or six months after the end of the COVID-19 National Emergency, whichever is later.
As an eligible non-borrowing spouse or heir, you may ask for an extension
The eligible non-borrowing spouse or heirs may ask the lender or loan servicer to extend timelines when a reverse mortgage borrower dies. Timelines that the lender or loan servicer may extend include, for example, when the heirs pay-off the loan or sell the property .
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HUD Reverse Mortgage HECM Mortgagee Letters
Información en Español
The mortgagee letters listed on this page update the policies in HUD Handbook 4235.1 .
All Mortgagee Letters are available online.
Please click on the year to see Mortgagee Letter(s)
2022 Mortgagee Letters:
- 2022-23 COVID-19 Home Equity Conversion Mortgage (HECM) Property Charge Repayment Plan
- 2022-22 Clarification of Conflict of Interest and Dual Employment Policy for Most Title II Single Family FHA-Insured Mortgage Transactions
- 2022-21 2023 Home Equity Conversion Mortgage (HECM) Limits
- 2022-19 Rescinding the Mandatory Use Date for the Federal Housing Administration (FHA) Catalyst: Electronic Appraisal Delivery (EAD) Module
- 2022-18 Acceptance of Private Flood Insurance for FHA-Insured Mortgages
- 2022-15 Update to Home Equity Conversion Mortgage (HECM) Program Requirements for Notice of Due and Payable Status
- 2022-11 Revised Appraisal Validity Periods
- 2022-04 Update to the Mandatory Use Date for the Federal Housing Administration (FHA) Catalyst: Electronic Appraisal Delivery (EAD) Module
- 2022-02 Technical Update to the Extension of the Deadlines for the First Legal Action and Reasonable Diligence Time Frame
Return to Publication Years
2021 Mortgagee Letters:
- 2021-29 2022 Home Equity Conversion Mortgage (HECM) Limits
- 2021-27 Appraisal Fair Housing Compliance and Updated General Appraiser Requirements
- 2021-25 Federal Housing Administration's Financial Requirements for Mortgagee Eligibility - Update toUnacceptable Assets
- 2021-24 Extension for COVID-19 Forbearance and COVID-19 Home Equity Conversion Mortgage (HECM) Extensions
- 2021-23 Mandatory Transition to the Federal Housing Administration (FHA) Catalyst: Electronic Appraisal Delivery (EAD) Module for FHA Single Family Appraisals
- 2021-19 Extension of the Foreclosure-Related Eviction Moratorium and Expiration of the Foreclosure Moratorium in Connection with the Presidentially-Declared COVID-19 National Emergency
- 2021-17 Revisions to Property and Appraisal Quality Control Review Requirements
- 2021-16 Extension of the End Date for COVID-19 Multisubject: Updated Temporary Guidance for Verification of Self-Employment; Rental Income; 203(k) Rehabilitation Escrow Account
- 2021-15 Extension of the Foreclosure and Eviction Moratorium in Connection with the Presidentially-Declared COVID-19 National Emergency, Further Expansion of the COVID-19 Forbearance and the COVID-19 Home Equity Conversion Mortgage (HECM) Extensions, and Establishment of the COVID-19 Advance Loan Modification (COVID-19 ALM)
- 2021-13 Student Loan Payment Calculation of Monthly ObligationStudent Loan Payment Calculation of Monthly Obligation
- 2021-11 Amendments to HUD's Non-Borrowing Spouse Policy for all Home Equity Conversion Mortgage (HECM) Loans
- 2021-09 Announcement of Revised Form HUD-9991, FHA Condominium Loan Level/Single-Unit Approval Questionnaire and Revised Form HUD-9992, FHA Condominium Project Approval Questionnaire
- 2021-08 Home Equity Conversion Mortgage (HECM) Program - Changes to Interest Rate Requirements Including Removal of the London Interbank Offered Rate (LIBOR) Index
- 2021-07 Extension of the End Date for COVID-19 Multisubject: Updated Temporary Guidance for Verification of Self-Employment; Rental Income; 203(k) Rehabilitation Escrow Account
- 2021-06 Extension of Re-verification of Employment and Exterior-Only Appraisal scope of work (SOW) option for Federal Housing Administration (FHA) Single Family programs impacted by the Coronavirus Disease of 2019 (COVID-19)
- 2021-05 Extensions of Single Family Foreclosure and Eviction Moratorium, Start Date of COVID-19 Initial Forbearance, and HECM Extension Period; Expansion of COVID-19 Loss Mitigation Options
- 2021-04 Update to the COVID-19 Forbearance Start Date and the COVID-19 Home Equity Conversion Mortgage (HECM) Extension Period
- 2021-03 Extension of Foreclosure and Eviction Moratorium in Connection with the Presidentially-Declared COVID-19 National Emergency
2020 Mortgagee Letters:
- 2020-49 Revised Form HUD-92900-A, HUD Addendum to Uniform Residential Loan Application
- 2020-48 Manufactured Housing Appraisal Sales Comparison Approach Update
- 2020-47 Extension of Re-verification of Employment and Exterior only Appraisal scope of work option for Federal Housing Administration (FHA) Single Family programs impacted by the Coronavirus Disease of 2019 (COVID-19)
- 2020-46 Extension of Temporary Guidance for COVID-19 Multisubject: Updated Temporary Guidance for Verification of Self-Employment; Rental Income; 203(k) Rehabilitation Escrow Account
- 2020-44 Second Update to the COVID-19 Forbearance Start Date and the COVID-19 Home Equity Conversion Mortgage (HECM) Extension Period
- 2020-43 Extension of Foreclosure and Eviction Moratorium in Connection with the Presidentially-Declared COVID-19 National Emergency
- 2020-42 2021 Home Equity Conversion Mortgage (HECM) Limits
- 2020-40 Extension of the End Date for COVID-19 Multisubject: Updated Temporary Guidance for Verification of Self-Employment; Rental Income; 203(k) Rehabilitation Escrow Account
- 2020-37 Extension of Re-verification of Employment guidance and Updated Appraisal Scope of Work Option for Federal Housing Administration (FHA) Single Family programs impacted by the Coronavirus Disease of 2019 (COVID-19)
- 2020-34 Update to the Date for Approving a COVID-19 Forbearance or COVID-19 Home Equity Conversion Mortgage (HECM) Extension
- 2020-29 FHA Catalyst: Case Binder Module - Expanded Functionality and Updated Case Binder Submission Requirements for Federal Housing Administration (FHA) Post Endorsement Loan Reviews
- 2020-28 Re-Extension of the Effective Date of Mortgagee Letter (ML) 2020-05, Reverification of Employment and Exterior-Only and Desktop-Only Appraisal Scope of Work Options for the Federal Housing Administration (FHA) Single Family programs impacted by the Coronavirus Disease of 2019 (COVID-19)
- 2020-27 Extension of Foreclosure and Eviction Moratorium in Connection with the Presidentially-Declared COVID-19 National Emergency
- 2020-24 Revision of Effective Date for COVID-19 Multisubject: Updated Temporary Guidance for Verification of Self-Employment; Rental Income; 203(k) Rehabilitation Escrow Account
- 2020-23 COVID-19 Multisubject: Updated Temporary Guidance for Verification of Self-Employment; Rental Income; 203(k) Rehabilitation Escrow Account
- 2020-20 Re-Extension of the Effective Date of Mortgagee Letter 2020-05, Re-verification of Employment and Exterior-Only and Desktop-Only Appraisal Scope of Work Options for FHA Single Family Programs Impacted By COVID-19
- 2020-19 Extension of Foreclosure and Eviction Moratorium in Connection with the Presidentially-Declared COVID-19 National Emergency
- 2020-14 Extension of the Effective Date of Mortgagee Letter 2020-05, Reverification of Employment and Exterior-Only and Desktop-Only Appraisal Scope of Work Options for FHA Single Family Programs Impacted By COVID-19
- 2020-13 Extension of Foreclosure and Eviction Moratorium in connection with the Presidentially-Declared COVID-19 National Emergency and New Reporting Requirements Related to FHA Single Family's CARES Act Loss Mitigation Options
- 2020-12 Updated Guidance for Home Equity Conversion Mortgage (HECM) Claim Type 22 (CT-22) Assignment Claims during the COVID-19 National Emergency
- 2020-07 FHA Catalyst: Case Binder Module – Single Family Forward and Home Equity Conversion Mortgage (HECM) Electronic Endorsement Submission
- 2020-06 FHA's Loss Mitigation Options for Single Family Borrowers Affected by the Presidentially-Declared COVID-19 National Emergency in Accordance with the CARES Act
- 2020-05 Re-verification of Employment and Exterior-Only and Desktop-Only Appraisal Scope of Work Options for FHA Single Family Programs Impacted By COVID-19
- 2020-04 Foreclosure and Eviction Moratorium in connection with the Presidentially-Declared COVID-19 National Emergency
2019 Mortgagee Letters:
- 2019-20 2020 Nationwide Home Equity Conversion Mortgage (HECM) Limits
- 2019-17 Home Equity Conversion Mortgage (HECM) Program – Condominium Requirements
- 2019-16 Home Equity Conversion Mortgage (HECM) Program – Continuation of HECM Collateral Risk Assessment Requirements
- 2019-15 Updates to Mortgagee Optional Election (MOE) Assignment for Home Equity Conversion Mortgages (HECMs) with FHA Case Numbers Assigned Prior to August 4, 2014
- 2019-01 Mortgagee Letter 2019-01 Third Party Verification Services
2018 Mortgagee Letters:
- 2018-12 2019 Nationwide Home Equity Conversion Mortgage (HECM) Limits
- 2018-08 Updated Guidance on Home Equity Conversion Mortgage (HECM) Claim Type 22 (CT-22) Assignment Requests
- 2018-06 Home Equity Conversion Mortgage (HECM) Program – Changes to Appraisal Submission and Assessment for all HECM Originations
2017 Mortgagee Letters:
- 2017-17 2018 Nationwide Home Equity Conversion Mortgage (HECM) Limits
- 2017-12 Home Equity Conversion Mortgage Program: Mortgage Insurance Premium Rate and Principal Limit Factors
- 2017-11 Implementation of HUD's January 2017 Home Equity Conversion Mortgage Final Rule
- 2017-05 Home Equity Conversion Mortgage (HECM) Claim Type 22 (CT-22) Assignment Requests
2016 Mortgagee Letters:
- 2016-19 2017 Nationwide Home Equity Conversion Mortgage (HECM) Limits
- 2016-16 Home Equity Conversion Mortgage Program: Source for 10-Year LIBOR Swap Rate
- 2016-10 Home Equity Conversion Mortgage (HECM) Program - Servicing Fee Set-Aside Growth Rate, Third Party Property Tax Verification Fees, and Financial Assessment and Property Charge Requirements
- 2016-07 Expanded Permissive Loss Mitigation for Home Equity Conversion Mortgages (HECMs) and Mortgagee's Optional Extension to Submitting a Due and Payable Request
- 2016-05 Additional Guidance related to Mortgagee Letter 2015-15, Mortgagee Optional Election (MOE) Assignment for Home Equity Conversion Mortgages (HECMs) with an FHA Case Number assigned prior to August 4, 2014
- 2016-03 Single Family Foreclosure Policy and Procedural Changes for HUD Title II Forward Mortgages and Reverse Mortgages
- 2016-02 Update of Preservation and Protection (P&P) Requirements and Cost Reimbursement Procedures for Title II Forward Mortgages and Home Equity Conversion Mortgages (HECMs)
- 2016-01 Additional Extension of Certain Timeframes in connection with Mortgagee Letter 2015-11 (Loss Mitigation Guidance for Home Equity Conversion Mortgages in Default due to Unpaid Property Charges) and Mortgagee Letter 2015-26
2015 Mortgagee Letters:
- 2015-29 2016 Nationwide Home Equity Conversion Mortgage (HECM) Limits
- 2015-26 Extension of Certain Timeframes in connection with Mortgagee Letter 2015-11, Loss Mitigation Guidance for Home Equity Conversion Mortgages (HECMs) in Default due to Unpaid Property Charges.
- 2015-24 Single Family Foreclosure Policy and Procedural Changes for HUD Title II Forward Mortgages and Reverse Mortgages
- 2015-15 Mortgagee Optional Election Assignment for Home Equity Conversion Mortgages (HECMs) with an FHA Case Number assigned prior to August 4, 2014
- 2015-12 Mortgagee Optional Election Assignment for Home Equity Conversion Mortgages (HECMs) with FHA Case Numbers assigned prior to August 4, 2014
- 2015-11 Loss Mitigation Guidance for Home Equity Conversion Mortgages (HECMs) in Default due to Unpaid Property Charges
- 2015-10 Home Equity Conversion Mortgage (HECM) Due and Payable Policies
- 2015-09 Home Equity Conversion Mortgage (HECM) Program - Life Expectancy Set-Aside Growth Rate and Clarification to Section 3.98 of the HECM Financial Assessment and Property Charge Guide
- 2015-06 Home Equity Conversion Mortgage (HECM) - Delay in Effective Date for Financial Assessment and Property Charge Funding Requirements for the Payment of Certain Property Charges
- 2015-02 Home Equity Conversion Mortgage (HECM) Program: Policy Guidance and Certifications for Eligible and Ineligible Non-Borrowing HECM Spouses and Seasoning Requirements Guidance
2014 Mortgagee Letters:
- 2014-22 HECM Financial Assessment and Property Charge Requirements
- 2014-21 Revised Changes to the HECM Program Requirements
- 2014-12 New HECM Principal Limit Factors
- 2014-11 HECM Limit on Insurability of Fixed Interest Rate Products
- 2014-10 HECM Prohibits Misleading or Deceptive Program Descriptions or Advertising and Prohibits Restriction of Mortgagor Freedom of Choice
- 2014-07 HECM Non-Borrowing Spouse
2013 Mortgagee Letters:
- 2013-45 Delay HECMS Eff Date for Financial Assessment / Funding Requirements
- 2013-33 HECM Mandatory Obligations, Life Expectancy Set-Aside Calculation, and Purchase Transactions
- 2013-28 Financial Assessment and Property Charge Guide
- 2013-28 Attachment: Property Charge Guide
- 2013-27 Changes to the HECM Program Requirements
- 2013-02 Amended Late Request for Endorsement Procedures
- 2013-01 Consolidation of Pricing Options and PLFs for Fixed Interest Rates
2012 Mortgagee Letters:
- 2012-17 HERMIT System for HECM Loans
2011 Mortgagee Letters:
- 2011-39 Maximum Mortgage Limits
- 2011-31 Rev HUD 92902, Cert of HECM Counseling/Clarification of Guidance
- 2011-29 New Maximum Mortgage Limits: Effective October 1, 2011
- 2011-26 Intermediaries Included on the HECM Counselor List
- 2011-16 Rescission of Borrower's Recourse
- 2011-09 Waiver of fees/activities on Certificate
- 2011-01 HECM Property Charge Loss Mitigation
2010 Mortgagee Letters:
- 2010-39 HUD-1 Settlement Statement Closing Certification
- 2010-39 Attachment
- 2010-37 Provide a List of Counseling Agencies
- 2010-34 HECM Saver; MIP and PLFs
- 2010-22 Submission of Case Binder Documents
- 2010-22 Attachment
- 2010-07 HECM Loan Forms & Guidance
2010-07 Attachments: (Below)
2009 Mortgagee Letters:
- FannieMae Form 1009
- Home Equity Conversion Mortgage Loan Agreement
- Exhibit 1 - Payment Plan
- Exhibit 2 - Schedule of Closing Costs
- Exhibit 3 - Repair Rider
- 2009-49 Subordinate Liens
- 2009-47 Counseling Standardization & Roster
- 2009-44 Debenture Interest and Claim Filing Instructions
- 2009-34 Principal Limit Factors
- 2009-21 HECM Refinances
- 2009-11 HECM for Purchase Prog
- 2009-11 Attachment 1 Investment Examples
- 2009-10 Counseling Requirement
- 2009-07 Loan Limit Increases for FHA
- 2009-07 Attachment 1 Counties at the Ceiling
- 2009-07 Attachment 2 Counties between the Floor and Ceiling
2008 Mortgagee Letters:
- 2008-38 Clarifies Repayment & Terminations
- 2008-36 2009 Maximum Mortgage Limits
- 2008-35 HECM Mortgage Limits Effective Immediately
- 2008-34 HECM Origination Fee - New Limits
- 2008-33 HECM for Purchase Program
- 2008-28 Prohibits Mortgagee Funded Counseling
- 2008-24 Requirements on Mortgage Originators
- 2008-14 Non FHA-Approved Mortgage Brokers
- 2008-12 Counseling Fee
- 2008-08 Fixed Interest Rate
2007 Mortgagee Letters:
- 2007-13 ARMs Addition of LIBOR Index
- 2007-08 Face-to-face Interviews
- 2007-06 Property Eligibility Requirements
2006 Mortgagee Letters:
- 2006-30 Mortgagee Approval Guidance on 4060.2 r2
- 2006-25 Counseling Requirements
- 2006-23 Elimination of Photo Identification Evidence
- 2006-22 Extension of Principal Limit Rate Lock
- 2006-20 Subordinate Liens & State & Local Court-Ordered Judgments & Judgment Liens
- 2006-07 Clarification of Mortgagee Letter 06-04 - Closing Costs
- 2006-06 Line of Credit Payment Option for Texas
2005 Mortgagee Letters:
- 2005-44 National HECM Counseling Network
2004 Mortgagee Letters:
- 2004-48 HECM Counseling Requirements Simplified
- 2004-39 Signature Reduction, Clarification of Required FHA Documents and Revised Instruction to "Residential Loan Application for Reverse Mortgages"
- 2004-27 Delayed Effective Date for Mortgagee Letter 2004-25 Instructions
- 2004-25 Clarification of counseling requirements
- 2004-22 Elimination of paper mortgage insurance certificates
- 2004-18 Refinancing Existing HECMs and Revision to the HECM Calculation Software
2003 Mortgagee Letters:
- 2003-22 Home Equity Conversion Mortgages (HECMs) -Procedural Guidance
- 2003-16 Home Equity Conversion Mortgage (HECM)-Interest Rate Lock-Ins
2002 Mortgagee Letters:
- 2002-12 Reinstatement of the Housing Counseling Notification Requirement
2001 Mortgagee Letters:
- 2001-18 CHUMS Programming Changes for HECM Processing
- 2001-16 Home Equity Conversion Mortgage Program (HECM) Servicing and Claim Issues
2000 Mortgagee Letters:
- 2000-34 HECMs in Texas (Supplement to Mortgagee Letter 00-09 dated March 8, 2000) and instructions on using HECM Mortgage Calculation Software (Supplement to Mortgagee Letter 99-36, dated December 10, 1999)
- 2000-10 Revisions to the Home Equity Conversion Mortgages (HECMs) Program
- 2000-09 Home Equity Conversion Mortgages (HECMs) in Texas
1999 Mortgagee Letters:
- 1999-36 Home Equity Conversion Mortgage Calculation Software
- 1999-02 Implementation of the Final Rule - HECM Consumer Protection Measures
1998 Mortgagee Letters:
- 1998-25 Optional New Loan Application Form
- 1998-03 Servicing Fee Cap Monthly Adjustable Loans
1997 Mortgagee Letters:
- 1997-38 Case Processing, System Issues, Coming Enhancements, Solving Roadblocks
- 1997-15 Implementation of Final Rule and Other Information
1996 Mortgagee Letters:
- 1996-15 Changes in Program Requirements
1995 Mortgagee Letters:
- 1995-54 Implementation of Direct Endorsement Program and New Disclosure Requirements on Reverse Mortgages to Consumers
- 1995-45 Lapse of Insuring Authority
1994 Mortgagee Letters:
- 1994-44 Claims Instructions for FHA-Insured Home Equity Conversion Mortgage
1993 Mortgagee Letters:
- 1993-22 Changes and Clarifications to HUD Handbook 4235.1
1991 Mortgagee Letters:
- 1991-01 Implementation of Certain Provisions of the 1990 Housing Legislation
1990 Mortgagee Letters:
- 1990-17 Changes and Amendments to HUD Handbook 4235.1
198 8 Mortgagee Letters:
- 1988-38 Home Equity Conversion Mortgage Insurance Demonstration- Procedures for Applying for Reservations of Insurance Authority
Return to HUD's HECM web pages
Reverse Mortgage FAQs
These frequently asked questions are arranged in the order in which they occur during the loan origination process. If you read all the questions from beginning to end, you will be traveling through the entire process.
For answers to frequently asked questions about the following, click on the term:
Existing mortgage, social security and medicare, rejecting a reverse mortgage, payment options, amount of proceeds, use of proceeds, growth feature, loan closing date, right of rescission.
- Two Mortgages
- MIP (Mortgage Insurance Premiums)
- Interest Charges and Income Taxes
Property taxes, hazard insurance, flood insurance.
- Non-recourse Provision
Q: Does my home qualify? A: Eligible property types include single-family homes, 2-4 unit properties, manufactured homes (built after June 1976), condominiums, and townhouses. Co-ops do not qualify.
Q: Are there any special requirements to get a reverse mortgage? A: You must own a home, be at least 62, and have enough equity in your home. There are no medical requirements.
Lenders must conduct a financial assessment of every reverse mortgage borrower to ensure he or she has the financial capacity to continue paying mandatory obligations, such as property taxes and homeowner’s insurance, as stipulated in the Loan Agreement.
If a lender determines that a borrower may not be able to keep up with property taxes and homeowner’s insurance payments, they will be authorized to set-aside a certain amount of funds from the loan to pay future charges.
Q: What if I have an existing mortgage? A: You may qualify for a reverse mortgage even if you still owe money on an existing mortgage. However, the reverse mortgage must be in a first lien position, so any existing indebtedness must be paid off. You can pay off the existing mortgage with a reverse mortgage, money from your savings, or assistance from a family member or friend.
For example, let’s say you owe $100,000 on an existing mortgage. Based on your age, home value, and interest rates, you qualify for $125,000 under the reverse mortgage program. Under this scenario, you will be able to pay off ALL the existing mortgage and still have $25,000 left over to use as you wish.
Q: Will I lose my government assistance if I get a reverse mortgage? A: A reverse mortgage does not affect regular Social Security or Medicare benefits. However, if you are on Medicaid or Supplemental Security Income (SSI), any reverse mortgage proceeds that you receive must be used immediately. Funds that you retain count as an asset and could impact eligibility. For example, if you receive $4,000 in a lump sum for home repairs and spend it all the same calendar month, everything is fine. Any residual funds remaining in your bank account the following month would count as an asset. If the total liquid resources (including other bank funds and savings bonds) exceed $2,000 for an individual or $3,000 for a couple, you would be ineligible for Medicaid. To be safe, you should contact the local Area Agency on Aging or a Medicaid expert.
Q: Under what circumstances should I not consider a reverse mortgage? A: Because of the upfront costs associated with a reverse mortgage, if you intend to leave your home within 2 to 3 years, there may be other less expensive options to consider, such as home equity loans, no-interest loans or grants that may be offered by your county government or a local non-profit to repair your home, or a tax deferral program, if you’re having problems paying your property taxes. Also, if you want to leave your home to your children, then you should consider other options, because in many cases, the home is sold to pay back a reverse mortgage.
Q: What are My Payment Plan Options? A: You can choose to receive the money from a reverse mortgage all at once as a lump sum, fixed monthly payments either for a set term or for as long as you live in the home, as a line of credit, or a combination of these. To learn more, click here .
Q: How Much Money Can I Get? A: The amount of funds you are eligible to receive depends on your age (or the age of the youngest spouse when there is a couple), appraised home value, interest rates, and in the case of the government program, the FHA lending limit, which is currently $970,800. If your home is worth more, then the amount of funds you may be eligible for will be based on the $970,800 loan limit. In general, the older you are and the more valuable your home (and the less you owe on your home), the more money you can get.
During the first 12 months after closing, a borrower cannot access more than 60 percent of the available loan proceeds. In month thirteen, a borrower can access as much or as little of the remaining funds as he or she wishes.
There are exceptions to the 60 percent rule. If you have an existing mortgage, you may pay it off and take an additional 10 percent of the available funds, even if the total amount used exceeds 60 percent.
Q: How can I use the proceeds from a reverse mortgage? A: The proceeds from a reverse mortgage can be used for anything, whether its to supplement retirement income to cover daily living expenses, repair or modify your home (i.e., widening halls or installing a ramp), pay for health care, pay off existing debts, cover property taxes, or prevent foreclosure.
Q: How does the interest work on a reverse mortgage? A: With a reverse mortgage, you are charged interest only on the proceeds that you receive. Both fixed and variable interest rates are available. Rates are tied to an index, such as the U.S. Constant Maturity Rate, plus a margin that typically adds an additional one to three percentage points onto the rate you’re charged. Interest is not paid out of your available loan proceeds, but instead compounds over the life of the loan until repayment occurs.
Q: My understanding is that the unused balance in the HECM Line of Credit Option has a growth feature. Does that mean I’m earning interest? A: No, you’re not earning interest like you do with a savings account. After the first month of your HECM loan, the principal limit increases each month thereafter at a rate equal to one-twelfth of the mortgage interest rate in effect at that time, plus one-twelfth of monthly mortgage insurance premium rate. This growth should be considered a further extension of credit rather than an accrual of interest.
Q: What is the loan closing date? A : The Loan Closing Date for all HECMs is defined as the date on which you (the borrower) sign the note to your reverse mortgage. This date must appear, and be identified, as the “loan closing date” in Block 1 on Page 1 of the Form HUD-1 Settlement Statement, which you are to receive at your loan closing.
Q: What is the Right of Rescission? A: Regulation Z of the federal Truth In Lending Act provides you (the borrower) with a right of rescission, or right to cancel your loan, for three business days after your loan closing. Lenders are prohibited from charging interest on the funds which are held available for you during the three day rescission period. Interest must begin to accrue on the day after the disbursement is made. According to Regulation Z requirements, you must be provided with a copy of the Notice of the Right of Rescission at your closing. This notice informs you of your right to rescind the contract within three (3) days of loan closing. The notice must be signed and dated by you to indicate the date you received the notice. If you decide to rescind your contract, you must notify your lender within the three (3) days of your loan closing, according to the instructions provided on your Notice of the Right of Rescission.
For example, if you signed your Note on Thursday, March 13, 2020, the rescission period would expire on Monday, March 17, 2021, and the disbursement of funds would take place on Tuesday, March 18, 2021. The interest on the funds disbursed to you would begin to accrue on Wednesday, March 19, 2021.
Why Two Mortgages?
Q: Why did I sign two (2) Mortgages and Notes at my closing? A: Your lender is in a first lien position and the Federal Housing Administration is in a second lien position. If your lender fails to meet its obligations under the terms of the Loan Agreement, FHA can step in and assume responsibility for the loan, so that you continue getting uninterrupted access to your funds. Both the first and the second mortgage will be recorded with the county in which your property is located.
Q: What is the Service Fee Set Aside? A: The service fee set aside is the dollar amount deducted from your Original Principal Limit and serves to ensure the future payment of your monthly servicing fee. The amount of the service fee set aside is NOT part of your outstanding balance and is NOT accruing interest. As the service fee set aside is not part of the loan balance, the funds remaining in the service fee set aside at time of loan repayment are not subject to refund.
Q: Why am I charged a servicing fee? A: The monthly servicing fee covers the costs associated with administering your reverse mortgage loan. This administration includes, among other tasks, providing customer service, maintaining accurate records of your outstanding loan balance (including the interest and mortgage insurance premiums, etc.) at all times, tracking your property taxes and your hazard insurance, certifying your occupancy status, issuing your statements of account, issuing and collecting payments, collecting on the loan when it becomes due, and discharging the mortgage.
Mortgage Insurance Premiums
Q: Why is there a Mortgage Insurance Premium with my HECM reverse mortgage? A: Under the HECM program, you will be charged a Mortgage Insurance Premium (MIP) at closing that equals two (2) percent of the home’s appraised value or FHA lending limit ($970,800), whichever number is less.
You also are charged MIP on an annual basis — equal to 0.5 percent of the outstanding loan balance — however this fee doesn’t come out of your available loan proceeds. Rather, it accrues over time and you pay it once the loan is called due and payable.
The MIP guarantees that if the company managing your account – commonly called the loan “servicer” – goes out of business, the government will step in and make sure you have continued access to your loan funds. Furthermore, the MIP guarantees that you will never owe more than the value of your home when the HECM must be repaid.
The mortgage insurance premium is considered by the FHA to be a “fully earned premium” at the time of the loan closing and these mortgage insurance premiums are non-refundable.
Q: I elected to receive monthly payments, when will those monthly payments commence? A: Your first monthly payments are to be sent to you the first business day of the month following your loan funding date. For example, if your loan closed at the end of May and your loan funded in June, then your first monthly payment will be issued the first business day of July. If your loan closed in June, and your loan funded in June, then your first monthly payment will be the first business day of July.
Q: Can I change the type of payment plan I elected at closing? A: If you have a Home Equity Conversion Mortgage (HECM), and your loan documents allow for a payment plan change, then yes you can change your payment plan. This means that you can change from monthly payments to a Line of Credit, or vice versa. There is usually a fee associated with changing you payment plan. NRMLA strongly advises that you discuss the payment plan change options that may be available, and any possible fee for changing your payment plan, with your reverse mortgage servicer.
Q: What if my loan servicer does not send my requested funds in a timely manner? A: Your loan servicer is to send your requested Line of Credit funds within five (5) business days of receiving your request for funds. If you have scheduled monthly payments, then these funds are to be disbursed by the first business day of each month. If your servicer does not disburse your funds within these timeframes, FHA can fine your loan servicer and make them pay you an extra 10% of the payment that is due to you, plus interest on that sum for each additional day the disbursement is delayed. This fine shall not exceed $500 for each instance of late disbursement. This fine may not be added to your loan balance.
Q: Can I make a partial prepayment to my reverse mortgage account? A: Most reverse mortgages will permit a partial prepayment to your reverse mortgage account without penalty. NRMLA strongly advises that you discuss the partial prepayment options which may be available to you under the terms of your loan agreement with your reverse mortgage servicer.
Q: How are my partial prepayments applied to my loan balance? A: Each reverse mortgage product has specific sequences for applying partial prepayments. For example, if you currently have a HECM reverse mortgage, then your payments are applied in the following order: first to that part of your loan balance representing mortgage insurance premiums, secondly to that part of your loan balance representing servicing fees, thirdly to that part of your loan balance representing interest charges, and finally to that part of your loan balance representing principal advances. NRMLA strongly advises that you confirm with your loan servicer the manner in which your partial prepayments will be applied to your specific account.
Interest charges and your income taxes
Q: Can I deduct the interest charges for income tax purposes? A: Interest charges can only be deducted once those interest charges have been paid. As long as you have not made any payments to your reverse mortgage, you would be precluded from deducting those interest charges for income tax purposes. If you have made partial prepayments, then you must be assured that your prepayments have been applied to your interest charges (see section 7, “Prepayments”).
NRMLA strongly advises that you consult with an income tax professional for any guidance relating to the deductibility of you interest charges relating to your reverse mortgage account.
Q: What is a Repair Rider? A: In select cases, there may be a requirement that certain repairs to your property be completed so that your property meets the required lending standards. If completing such repairs was a condition of your loan closing, then you were to have signed a “Repair Rider” to your loan agreement. This Rider is your agreement to complete the required repairs within the time frame detailed in that Repair Rider. The Repair Rider is considered to be additional terms to your loan agreement.
NOTE: NRMLA strongly encourages you to have all of your required repairs completed by the deadline stated in your Repair Rider. Failure to complete your repairs by the date stipulated in your Repair Rider is a DEFAULT OF THE LOAN AGREEMENT and will cause the suspension of all payments to you and may cause your loan to be called due and payable.
Q: What is a “Repair Set Aside”? A: The “Repair Set Aside” is the portion of your available funds which are to be used solely for the completion of your required repairs. This “set aside” is not part of your loan balance until which time the funds are actually disbursed.
Q: Will inspections be required to verify the required repairs have been completed? A: Yes. Your loan servicer will arrange to have the repair work inspected so as to verify the required repairs have been completed. It may be possible to arrange interim inspections so that partial repair completion payments can be made by your loan servicer.
Q: Should I receive a statement of account from my loan servicer? A: Yes. Your loan servicer must issue to you a statement of account after each line of credit activity. Your loan servicer must also issue to you a statement advising you of any impending interest rate change that may impact your reverse mortgage. Additionally, your loan servicer is required to provide to you an annual statement of account by January 31 which details all of your previous year’s reverse mortgage account activity. The annual statement must summarize all advances of principal, all Mortgage Insurance Premiums accrued, all interest charges, and all property charges paid in the prior year.
Q: Why do I receive “Occupancy Certificates”? A: All reverse mortgages require you to periodically certify that you continue to reside in the mortgaged property as your primary residence. You must truthfully attest to your occupancy status on this Occupancy Certificate by signing the certificate and returning this Occupancy Certificate to your loan servicer. Failure to complete this Occupancy Certificate in a timely manner may cause an interruption in your reverse mortgage payments and may eventually lead to a default in the terms of your loan agreement.
Q: Do I have to pay my property taxes? A: Yes, it is your responsibility to ensure that your property taxes are paid in a timely manner. Failure to keep your property taxes current is considered a DEFAULT in the terms of your Loan Agreement and may be grounds for calling your loan due and payable.
Q: What is a “Tax Set Aside”? A: You may choose to have your reverse mortgage servicer pay your property taxes on your behalf. You may work closely with your servicer so as to determine how much your property taxes are each year and for how many years you want your servicer to pay your taxes on your behalf. The amount that is required to meet this tax obligation will be “set aside” from your available loan proceeds and will be used for the payment of your taxes. These funds do not become part of your loan balance until which time the funds are actually disbursed.
Q: Can I participate in a property tax deferral program? A: You may only participate in a property tax deferral program if the lien created by your deferral program is subordinate to your reverse mortgage loan. NRMLA strongly advises you to check with your loan servicer to determine if you reside in an area that might allow for a property tax deferral.
Q: May I participate in a tax exemption program? A: Yes, tax exemption programs are permitted under the reverse mortgage program. NRMLA strongly suggests that you coordinate your participation in any tax exemption program with your loan servicer.
Q: Am I required to maintain Hazard Insurance on my mortgaged property? A: Yes. You must maintain Hazard Insurance on your property in an amount that is equal to at least 100% of the insurable value of the improvements at the time of your loan closing. You must provide your loan servicer with a copy of your Hazard Insurance policy and ensure that the policy is renewed upon expiration. Failure to maintain adequate Hazard Insurance on your property is considered a DEFAULT in the terms of your Loan Agreement and may be grounds for calling your loan due and payable.
Q: What is an “Insurance Set Aside”? A: You may choose to have your reverse mortgage servicer pay your Hazard Insurance premiums on your behalf. You may work closely with your servicer so as to determine how much your Hazard Insurance premiums are each year and for how many years you want your servicer to pay your premiums on your behalf. The amount that is required to meet these premium obligations will be “set aside” from your available loan proceeds and will be used for the payment of your Hazard Insurance premiums. These funds do not become part of your loan balance until which time the funds are actually disbursed.
Q: Do I have to carry Flood Insurance in addition to my Hazard Insurance? A: If your property is in an area that has been identified by FEMA as having special flood hazards, then you must maintain Flood Insurance in compliance with the Flood Disaster Act of 1973. If you are required to maintain Flood Insurance, then you must provide your loan servicer with evidence of this coverage and ensure that this policy is renewed upon expiration.
Q: I was not required to have Flood Insurance when my loan closed, but I am now notified that I must get Flood Insurance. Why is this? A: FEMA will periodically update their Flood Maps and alter the risk of flood associated with your geographic area. If FEMA determines that your geographic area represents a risk of flood, then you must purchase flood insurance to be in compliance with the terms of your Loan Agreement. Conversely, if you were considered to be in a flood zone at the time of your loan closing, but FEMA updated your geographic area to be a non-risk zone, then you may cancel your Flood Insurance once your loan servicer has been formally notified of the change to your geographic area.
Q: Why have I received a notice that my loan is being assigned to HUD? A: Under the Home Equity Conversion Mortgage (HECM) plan, your loan servicer may assign your loan to HUD when your outstanding loan balance reaches 98% of the maximum claim amount. HUD will continue to administer your HECM reverse mortgage. HUD will continue to issue your disbursements and will track your Property Taxes, Hazard and Flood Insurance and Occupancy.
Q: What happens if I file for Bankruptcy while I have a reverse mortgage? A: Filing for Bankruptcy is NOT a default in the terms of the Home Equity Conversion Mortgage (HECM) Program. Under the HECM program, you cannot access any additional reverse mortgage funds unless that request for funds is approved by the court or the trustee monitoring the bankruptcy proceedings. NRMLA strongly recommends that you notify your loan servicer once any Bankruptcy action is taken. If your reverse mortgage is not a HECM reverse mortgage, then you must check with your loan servicer to determine if Bankruptcy is a default under the terms of your loan agreement.
Q: What is a maturity event? A: A maturity event is any event which may cause your reverse mortgage to be called due and payable. Once a loan has reached a maturity event, then no additional funds may be advanced from the reverse mortgage. Such maturity events include:
- All borrowers have passed away
- All borrowers have sold or conveyed title of the property to a third party
- The property is no longer the principal residence of at least one borrower for reasons other than death
- The borrower does not maintain the property as principal residence for a period exceeding 12 months because of physical or mental illness
- Borrower fails to pay property taxes and/or insurance and all attempts to rectify the situation have been exhausted
- The property is in disrepair and the borrower has refused or is unable to repair the property.
Q: Can I pay off my reverse mortgage before a maturity event is reached? A: Yes. You can pay your reverse mortgage in full at any time during the term of your reverse mortgage.
Q: How long will my estate have to pay off the reverse mortgage once it has been called due and payable? A: The reverse mortgage is to be paid in full once it has been called due and payable. You and/or your estate must work closely with your loan servicer to ensure your reverse mortgage is paid in full in a timely manner. If arrangements to pay the reverse mortgage are not made with your loan servicer, then your loan servicer may proceed with foreclosure between 30 days and six months from when your loan has been called due and payable. If you or your estate are actively working to either refinance your property or sell your property so as to satisfy your reverse mortgage, then foreclosure maybe forestalled. It is not typical to forestall foreclosure after one year has passed since the maturity event. NRMLA strongly advises you and your estate to work closely with your loan servicer once your loan has been called due and payable.
Q: What does “non-recourse loan” mean? A: Most reverse mortgage loans are considered “non-recourse loans.” This means that you can never owe more than the value of your home at the time you or your heirs sell your home to repay your reverse mortgage. If your loan is a Home Equity Conversion Mortgage (“HECM”), the reverse mortgage debt may be satisfied by paying the lesser of the mortgage balance or 95% of the current appraised value of the home.
New Protections from Foreclosure of Reverse Mortgages
While a reverse mortgage may be an attractive option for homeowners in financial difficulty who wish to remain in their homes during their lifetime, too often this goal is frustrated. Even with a reverse mortgage, homeowners can lose possession of a home for any number of reasons:
- Delinquency on property taxes, homeowner’s insurance, homeowner association fees, and other property charges;
- Failure to maintain the home properly or perform needed home repairs;
- A homeowner’s absence from the home for the majority of the year, or if the absence is health-related, after a one-year absence if no other borrower is listed on the reverse mortgage;
- Death of one of the homeowners where the other spouse is not listed on the reverse mortgage.
These foreclosures disproportionately affect people of color . A July 2019 USA Today article showed that communities of color had foreclosure rates six times as high as majority white neighborhoods. As with other mortgages, foreclosure on reverse mortgages have been put on hold due to the pandemic until June 30, 2021 . With the deadline approaching, this article provides information on the risks of foreclosure even for reverse mortgages, sets out new protections from that foreclosure, and also summarizes other rights to avoid foreclosure on a reverse mortgage.
The nation’s major reverse mortgage program, administered by HUD, is called the Home Equity Conversion Mortgage (HECM) program. HECM reverse mortgages are made by private lenders, but are governed by rules set out by HUD. Two recent HUD actions however significantly reduce the risk of subsequent foreclosure for homeowners and surviving spouses under the HECM program.
New Protection Where One Spouse Moves into a Long-Term Care Facility
HUD’s May 6th Mortgagee Letter 2021-11 allows non-borrowing spouses of reverse mortgage borrowers to remain in their home after the borrower moves into a long term care or other healthcare facility. The new policy applies to all HECM loans that comprise a valid first lien security interest in the home, and lenders can comply effective May 6th, but must comply by September 3, 2021.
If two borrowers are listed on a reverse mortgage and one of them passes away or no longer resides in the home, the remaining borrower has rights under the reverse mortgage to remain in the home. Problems arise, however, where only one borrower is listed on the reverse mortgage and that person’s spouse is also living in the home. Under the prior policy, if the spouse listed on the mortgage spends more than a year in a long-term care or other health facility, the loan comes due and the non-borrowing spouse can be forced to leave the home.
The new HUD policy allows for a non-borrowing spouse to remain in the home as long as the non-borrowing spouse continues to occupy the home as a principal residence, is still married, and was married at the time of the issuance of the reverse mortgage to the spouse listed on the reverse mortgage. In addition, the loan that cannot be due and payable for other reasons. Once the borrowing spouse passes away, the non-borrowing spouse need no longer possess or demonstrate the ability to obtain good and marketable title to the property or a legal right to remain in the property for life.
For HECM mortgages entered into prior to August 4, 2014, while the non-borrowing party also must have been married to the borrowing spouse at the time of the mortgage and remain married while the borrowing spouse is absent in the healthcare facility, an exception is made for couples that could not be legally married at the time of the reverse mortgage origination because of state law restrictions of same sex couples. For the exception to apply, the couple had to be in a committed relationship akin to marriage at the time and must be married at the time the borrowing spouse is in the health care facility. For a discussion of foreclosure based on non-occupancy, see generally NCLC's Home Foreclosures § 188.8.131.52 .
Expanded Protections for Non-Borrowing Spouse Upon Borrowing Spouse’s Death
HUD’s May 6th Mortgagee Letter 2021-11 , effective May 6, 2021, but with a mandatory compliance date of September 3, 2021, also removes the largest remaining roadblock to non-borrowing spouses keeping their home after the borrower dies. As with the long-term care situation, where only one spouse is listed as a borrower on a HECM mortgage, issues arise where that spouse passes away and the non-borrowing spouse wishes to remain in the home. HECM reverse mortgage loans generally must be paid off when the last borrower dies, sells, or permanently relocates from the home.
Since August 4, 2014, HECM loan documents explicitly allow for a non-borrowing spouse to remain in the home after the borrower’s death, until the non-borrowing spouse either dies or moves out. Mortgagee Letter 2021-11 removes the major remaining impediment to non-borrowing spouses keeping their home after the borrower dies. Non-borrowing spouses will no longer have to provide proof of “good and marketable title or a legal right to remain in the home,” which often required an expensive probate filing and had pushed many spouses into foreclosure.
Process for HECM Mortgages Entered into Prior to August 4, 2014
In the past HECMs issued before August 4, 2014 did not provide protections for non-borrowing spouses living in the home after the death of the borrower. More recently HUD allowed such surviving non-borrowing spouses to remain in the home under the Mortgagee Optional Election (MOE) if offered by their loan servicer. The MOE offering is discretionary with the lender. In order to avoid being financially penalized by HUD, the lender must either initiate foreclosure or assign the loan to HUD through the MOE process within 180 days of the borrower’s death.
HUD issued revised guidelines on September 23, 2019, announced in Mortgagee Letter 2019-15 , requiring servicers to notify borrowers about the existence of the MOE option and to request the names of any non-borrowing spouse living in the home who may potentially qualify for the option. The letter also indicated that there is no hard deadline for servicers to elect to offer a MOE, although lenders after March 21, 2020, may face interest curtailment due to their delay. Lenders may choose to make the MOE election available even after starting the foreclosure process.
As is now the case for HECMs issued after August 4, 2014, non-borrowing spouses need not provide proof of marketable title or a legal right to remain in the home in order to be eligible for the MOE program. The surviving non-borrowing spouse must still be living in the principal residence and be married at the time of the mortgage issuance and still married at the time of the borrower’s death—subject to the exception where state law prohibited marriage of same-sex couples. The loan also cannot be due and payable for other reasons.
If the non-borrowing spouse qualifies for the MOE, the due and payable status on the loan will be deferred and the loan will not be subject to foreclosure until the spouse moves out of the home, dies, or fails to meet the terms and conditions of the loan, including paying the property charges. Though the spouse is required to meet the financial obligations of the loan (i.e., payment of ongoing property charges, home maintenance), they will not receive any proceeds from the HECM. The non-borrowing spouse must certify annually that these conditions for deferral continue to be met. For a discussion of foreclosure based on death of one borrower, see generally NCLC's Home Foreclosures § 184.108.40.206 .
Avoiding Foreclosure for Unpaid Property Taxes, Other Property Charges
A reverse mortgage is subject to foreclosure for unpaid property charges, including property taxes, homeowner’s insurance, homeowner association fees, and the like, and for failure to maintain the home properly or perform needed home repairs. One way to avoid such a foreclosure is, at the time the mortgage is issued, the lender can set aside funds from the available reverse mortgage’s principal limit to pay these expenses during the homeowner’s expected loan term.
If the homeowner still falls behind on these property charges, foreclosures may result. For property charge defaults for HECM mortgages, homeowners have certain protections. Typically, instead of declaring a delinquency, the lender elects to pay outstanding property charges by withholding amounts from monthly payments or by charging amounts to a line of credit. This solution works so long as loan funds remain available to draw.
When the available credit on the reverse mortgage is insufficient to cover the outstanding property charges, HUD generally requires lenders to advance their own funds, known as “loan advances” or “corporate advances,” to pay the property charges. Once there are no longer sufficient funds in the available credit, the loan is then in “default” and servicers will submit a due-and-payable request to HUD, for its approval, which will lead to acceleration of the debt and foreclosure, unless the servicer requests an extension of the foreclosure timeline for loss mitigation as outlined in Mortgagee Letter 2015-11 and Mortgagee Letter 2016-07 .
Once the borrower misses a payment, the servicer will provide notice of the property charge delinquency. This letter should include information on money advanced to cover the property charge and any loss mitigation the lender may offer. If the borrower does not cure the default, the loan may be called due and the servicer must send a due and payable notice. The due and payable notice will give the borrower thirty days to respond, outline available loss mitigation options, and outline the option to sell the home or execute a deed in lieu of foreclosure. Lenders must also refer borrowers to a HUD-approved housing counseling agency prior to initiating foreclosure.
The lender can request an extension of the foreclosure timeline to engage in loss mitigation. HUD has outlined several loss mitigation options that lenders may use to address outstanding property charge defaults: (1) establishing a realistic repayment plan for delinquent property charges; (2) referring borrowers to HUD-approved housing counselors or other local resources to resolve the delinquency or to identify and obtain funds to pay delinquent property charges; (3) refinancing the HECM with a new HECM if there is sufficient equity to satisfy the existing mortgage and delinquent property charges; (4) extending foreclosure timeframes for certain “at risk” mortgagors; and (5) implementing a mortgagee-funded cure of the default. HUD’s regulation states that the loss mitigation options are permissive, at the discretion of the lender, not mandatory.
Borrowers also have the option to cure the default and reinstate the loan, even after foreclosure has been initiated, subject to three limitations: (1) the loan was not reinstated in the past two years; (2) the reinstatement will not prevent the loan from becoming due and payable at a later date; and (3) reinstatement will not adversely affect the priority of the lien.
A servicer’s failure to follow these HUD guidelines may give rise to a defense to the foreclosure, just as it does in the foreclosure of forward mortgages. Although homeowners do not have a private right of action to enforce the HUD guidelines, many courts have held that the servicer’s failure to follow these guidelines provides a defense to a foreclosure.
For more details on defenses to a property charge foreclosure, with citations to appropriate regulations, see NCLC’s Home Foreclosures §§ 14.3.1 , 14.3.2 . Those sections also examine solutions based on refinancing the reverse mortgage into a larger reverse mortgage, local aid programs, payment plans, mortgagee-funded cures, and at-risk extensions.
For More Information
National Consumer Law Center, Home Foreclosures Chapter 14 is a detailed treatment of all foreclosure issues relating to reverse mortgages. See in particular §§ 220.127.116.11 , 18.104.22.168 and 22.214.171.124 .
Also of relevance is NCLC’s Mortgage Lending Chapter 9 , concerning the origination of reverse mortgages. See in particular §§ 9.3 and 9.7.2 . See also NCLC’s Mortgage Servicing and Loan Modifications .
A helpful handout for clients is NCLC’s Fact Sheet: Are You a Reverse Mortgage Non-Borrowing Spouse? Tips to Help You Remain in Your Home , February 2020.
Meet the author
Odette Williamson has been a staff attorney at NCLC since July, 1999. Prior to this she was an Assistant Attorney General in the Massachusetts Office of the Attorney General where she concentrated on civil enforcement actions against individuals and businesses for violation of consumer protection and other laws. As an AAG she also served on the Elder Law Advocates Strike Force to combat unfair and deceptive acts against elderly citizens. She attended Tufts University and Boston College Law School where she was a staff writer and editor for the Uniform Commercial Code Reporter-Digest. She is also admitted to the Massachusetts bar.
She is co-author of NCLC’s Foreclosures and Mortgage Servicing.
Sarah Bolling Mancini is a staff attorney focusing on foreclosures, mortgage lending, and credit reporting issues. Sarah previously worked in the Home Defense Program of Atlanta Legal Aid, and has represented homeowners in litigation in state, federal district, and bankruptcy courts. She also clerked for the Honorable Amy Totenberg, U.S. District Court for the Northern District of Georgia. Sarah is a member of the Georgia Bar. She received her B.A. in public policy from Princeton University and her J.D. from Harvard Law School.
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The Federal Housing Administration (FHA) will allow alternative documentation options and delayed documentation delivery deadlines for Home Equity Conversion Mortgage (HECM) lenders that have been affected by the COVID-19 coronavirus pandemic, effective immediately for all assignment claims submitted on or before October 30, 2020. This is according to Mortgagee Letter (ML) 2020-12, released by FHA on Tuesday afternoon.
Due to the widespread effects of the national emergency related to the coronavirus, the suspension of many non-essential operations and additional guidance from authorities related to social distancing have created difficulties for lenders in obtaining the necessary documentation to obtain FHA claim payments, and to submit required documents on schedule.
Overview, trade association response
The guidance issued by the new ML was praised by the National Reverse Mortgage Lenders Association (NRMLA) as providing necessary additional relief for the reverse mortgage industry during a difficult emergency.
“The workflow associated with the HECM assignment process is detailed and complicated, and this workflow has been frustrated by the challenges presented by the COVID-19 virus,” said NRMLA President Steve Irwin in a statement to RMD. “NRMLA and its members are grateful for the actions taken by HUD via this mortgagee letter to help facilitate a more effective and efficient assignment process.”
The possibility of the claim payment process being interrupted by the effects of the national emergency could be critical according to FHA, one of the primary reasons that this guidance has been issued.
“Because timely claim payment is critical in ensuring that HECM borrowers receive their loan proceeds in accordance with program requirements and guidelines, the U.S. Department of Housing and Urban Development (HUD) is issuing this guidance to provide HECM mortgagees with additional flexibilities during the COVID-19 National Emergency,” the ML reads in part.
Specifically, the ML makes three key exceptions that apply to HECM lenders during the national emergency: there is now alternative documentation available for specific HECM assignment claim requirements; there is an extension of time to deliver original notes and mortgages to the HUD Secretary; and there is extension of time to deliver recorded assignments of mortgage to the HUD Secretary for HECMs with case numbers assigned prior to September 19, 2017.
Alternative documentation types for assignment claims
“Some documentation required for payment of a CT-22 Assignment Claim is currently difficult or impossible to obtain given COVID-19 related closures around the country,” the ML reads regarding previously-required documents for HECM assignments. Several additional documents are now permitted during the duration of the national emergency to qualify as evidence of eligibility for an assignment claim payment.
The alternative documentation types include a report from a tax monitoring service indicating that property taxes are not delinquent as proof that the borrower’s taxes are current; a statement from a lender that HOA or Condominium dues are not delinquent; and an emailed or verbal certification from a borrower of that borrower’s occupancy of the property as their primary residence in lieu of the annual occupancy certification typically signed by the borrower.
“All other assignment claim documentation requirements remain in effect,” the ML reads. “If at any point, HUD identifies that any assignment criteria were not met at the time of claim payment, the Mortgagee must resolve the issue(s) or repurchase the HECM […].”
Delayed deadlines for original notes and mortgages
The ML also permits lenders an extension of time to deliver the original note and mortgage because of complications the national emergency has caused in making timely delivery under normal circumstances.
In order to receive claim payment after receiving approval to assign from HUD (but prior to HUD receiving the original note and mortgage) lenders must upload a copy of the note endorsed to the HUD Secretary, with visible endorsement information, into the Home Equity Reverse Mortgage Information Technology (HERMIT) system. Lenders must also complete the timeline step in HERMIT “Original Note and Mortgage Sent to HUD,” and enter step note “Documents Delayed COVID-19” into the HERMIT timeline.
Lenders are allowed to use this extension to deliver the original note and mortgage as soon as possible, but no later than 12 months from the date of the claim payment, FHA advises.
“For HECMs with an FHA case number assigned before September 19, 2017, mortgagees may also utilize an extension of time to deliver recorded assignments of Mortgage to the Secretary as soon as possible but no later than 12 months from the date of claim payment,” the ML reads. However, if the original note and mortgage are not provided within that time frame, the lender must repurchase the HECM loan within 30 days of receiving a defect notice from the Department.
Read ML 2020-12 at HUD.
- Federal Housing Administration
- U.S. Department of Housing and Urban Development
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Reverse Mortgage and Assignment Search
What is a reverse mortgage and assignment search.
A Reverse Mortgage and Assignment Search is a search of a specific property to locate the open Reverse and HUD mortgages filed concurrently, along with any assignments.
What is included in a Reverse Mortgage and Assignment Search?
- Full copies of each mortgage
- All assignments recorded against the mortgage
How is the report delivered?
The report is delivered in PDF format and includes an easy-to-read summary sheet along with full copies of the mortgages and assignments. Customization of the final report is also available.
Learn how our title reports, technology and data analysis save time and money on bulk order processing
Softening home prices... but home affordability shrank again? See the income needed to buy a home in the top 50 metro areas to find out what's going on.
Reverse mortgages FAQ: Very important questions
Those exploring reverse mortgages may have specific questions or concerns or need more information about concepts presented elsewhere in this guide. This very important question (VIQ) section provides clear answers to frequently asked questions (FAQs).
Reverse mortgage FAQs
Are reverse mortgages safe.
- What does "federally insured" reverse mortgage or HECM mean?
- Do I still need to pay property taxes with a reverse mortgage?
Can an HECM disturb other benefits I receive?
Can i cancel my reverse mortgage, is it possible to pay off my hecm or reverse mortgage loan, what happens if i become incapacitated, what happens if i move or live in my home part-time, what happens when the home is vacated by the last eligible resident, what happens if i use all my equity, can i end up owing any money to the reverse mortgage lender, what annual certification do hecms require.
Click through on the items of interest to you or scroll down to review all answers to very important questions about reverse mortgages and HECMs.
After a rough and rocky early history, the market for reverse mortgages (RMs) and home equity conversion mortgages (HECMs) has matured well. Most of the market has fallen in line with HUD's guidelines for HECMs, where precautions and safety nets have been added over time. For example, new rules prevent Grandma from getting thrown out of the home after Grandpa dies, while life-expectance set-asides ensure help that taxes and fees are paid.
In the past, reverse mortgages and HECMs suffered from a variety of consumer-unfriendly ills. For example, the fees and charges to obtain one were very high, draining a considerable chunk of a borrower's equity. At times, borrowers were encouraged to take all available equity at once, which in turn raised the total interest cost of the loan, since interest was being charged on the maximum amount from day one.
Due to these issues, many private reverse mortgage lenders stopped making these products available.
Today's HECMs and RMs are considerably more rigid than their freewheeling predecessors. Measurements of a borrower's financial capacity are required, and equity set-asides for required tax and insurance charges can be required. The issue of "trailing spouses" has been settled, as even an eligible "non-borrowing spouse" (a spouse not on the mortgage or deed) can remain in the home and not be required to make payments for an indefinite period, with payments deferred until the last eligible person leaves the home.
More stringent controls and tighter underwriting standards mean a safer product for borrowers, a more sustainable market for lenders and greater value to neighbors and neighborhoods.
What does "federally-insured" reverse mortgage or HECM mean?
With reverse mortgages or HECMs, loans may be "federally insured" or "federally guaranteed." However, the insurance (or guarantee) is made to the lender; that is, the Federal Housing Administration (FHA) insurance premiums you are required to pay protect the lender against any loss, even if the value of the home should decline.
Unlike "forward" mortgages, where the lender receives regular payments of interest, any interest payoff from making these loans may be many years away. Few lenders would be willing to take the risk of lending money to a homeowner for what may be many years with no return of interest while also facing the potential for a loss of principal.
This federal insurance, an indemnification against loss, is the lender's inducement to make these complicated products available to you.
Do I still need to pay my property taxes with a reverse mortgage?
Yes, and you'll be required to maintain required insurances and more on the house. However, who actually will be sending payments to these entities depends upon the results of a financial assessment the lender performs on you as a part of the HECM origination process.
Social Security benefits are not affected by reverse mortgage loan advances.
Medicare benefits are not affected by reverse mortgage loan advances.
However, if you are receiving any federal or state-offered "means-tested" benefits -- those that apply to low or moderate income people, such as SSI, SNAP, Medicaid or even certain Medicare part D (drug benefit) subsidies or certain state programs -- these MAY be affected by an HECM. This generally depends on how you draw the money from your home. For example, if you pull a large draw of funds and place it in a bank account, this can be counted as an asset (sometimes called a "liquid reserve" or "resource"). This increase in your asset base can affect your eligibility for some means-tested benefits.
Since they are technically a loan, regular advances of your equity to you, such as those in a tenure or term arrangements, are not considered income.
Yes, with some restrictions.
As with most mortgages, you generally have a "three day right of rescission" when it comes being able to cancel your HECM. That is, up to three days after the loan has closed, you have a right to cancel the deal if you have second thoughts. If you exercise this right to cancel, all fees and charges must be returned to you within 20 days, according to the Federal Trade Commission.
However, in cases where the loan is an "HECM for Purchase" transaction, there is generally no three-day right to cancel.
Just as with a first mortgage, you can pay off your outstanding balance at any time and close out the loan.
Although no payments are required, a homeowner can pay the loan off in full at any time with no prepayment penalty, or make a payment to lower the outstanding balance. If in conjunction with a line of credit, this can be useful to help preserve or increase available funds for future use.
HECMs allow the borrower to be out of the home for a period of up to 12 months without affecting the loan, as long as another eligible resident lives in the home. However, if a borrower fails to occupy the property because of physical or mental illness and the property is not the principal residence of at least one other eligible resident, the loan becomes due and payable.
To qualify as a "principal residence," a borrower or eligible non-borrower must occupy the home for at least 183 days per year.
If you move, the reverse mortgage becomes due and payable.
Changing from full-time to part-time occupancy may be okay. As long as you haven't established another home as your principal residence, and continue to occupy your HECM-liened home for a majority of the year, there should be no effect on your ability to retain your HECM.
While payment is due immediately, the owners (or heirs) have six months to satisfy the debt. If they are selling the property and it is still on the market after six months, the sellers can contact their servicer and request a 90-day extension, subject to approval by HUD. One additional 90-day extension can be requested, again with HUD's approval. It is also possible to execute a "deed-in-lieu" transaction, where the title of the property is turned over to the lender.
Even if you should run out of equity, your HECM won't require you to make any payments.
In the case of a tenure payment, you technically never run out of equity; even if your loan balance exceeds the originally established principal limit, you will still receive your regular payment as scheduled. This will continue regardless of whether or not you have hit any principal limit.
That's unique only to tenure payments, though, and doesn't apply to other methods of accessing your funds. If your line of credit is fully tapped, even though you still won't be required to make payments, you will not be able to borrow any more money. You can still remain in the home, but the loan enters what is called a deferral period.
Once you get close to an underwater point, though, the ownership of your loan will likely change from the lender or servicer who has been managing it. Instead, the lender or servicer may assign the loan back to HUD, who will take over the obligation of making payments to you. Interest charges and any servicing fees will still accrue, but this is where the mortgage insurance you've been paying for will start to be drawn to cover those charges. The lender will assign the loan to HUD and receive all the monies they are due, and HUD's costs of managing your loan going forward are offset by drawing from the insurance pool to which you've been required to contribute.
It's technically possible that, if home prices have appreciated more strongly than anticipated over time, that you'll be able to refinance your HECM with a new HECM to allow you to tap these additional funds. However, this will generally require that you go back though the entire process again, paying closing costs and any mandatory fees an additional time. One small benefit might be that, depending upon the age of the existing HECM, you might not be required to attend counseling sessions a second time, and the up-front insurance premium may be reduced. For everything else, it will be akin to getting a brand-new HECM.
No equity left, but your obligations continue…
If the borrower fails to make the required payments, the lender has the authority from HUD to make payments. The lender is required to pull funds remaining in your account, if any. If your account has insufficient funds, the lender must pay required taxes and property charges with its own funds. At that time, the lender would contact you within 30 days to set up a plan to recover those funds.
Of course, failure to pay these required property charges does technically put the loan in default. If the borrower has insufficient funds available under the HECM to satisfy unpaid property charges, the borrower is in default and the mortgage is eligible to be called due and payable by the lender. If this situation isn't remedied by the borrower, this would generally start the loan down the path to foreclosure.
No. According to the HECM mortgage note, the borrower shall have no personal liability for payment of the debt secured by this mortgage; the lender may enforce the debt only through sale of the property. As a "non-recourse" loan, the lender is prohibited from obtaining any deficiency judgment against the homeowner if the loan if foreclosed.
In cases where this loan is returned to HUD -- for example, it reaches a threshold equivalent to 98 percent of the original established value, and the lender assigns it back to HUD -- the borrower has no liability for any difference between the total of the mortgage insurance benefits paid to the lender and the outstanding balance of the loan.
If the loan balance exceeds the home's appraised value, the FHA insurance fund absorbs that loss. The government pays for it with proceeds from its insurance fund, which the borrower pays into at closing and on a monthly basis.
According to HUD's rules, an HECM borrower shall complete and provide to the servicer a certification on their present residency status every year. This certification verifies:
- The property remains the borrower's principal residence, and if applicable, is the principal residence of his or her eligible non-borrowing spouse.
- The presence of an eligible non-borrowing spouse.
- All requirements for the application of a loan deferral period apply and continue to be met.
If already in a loan deferral period, an eligible non-borrowing spouse must continue to file annual certifications that all conditions required to continue the loan deferral period are being met.
Previous: Reverse mortgage protections for spouses and other household occupants
For more answers, see:
RM / HECM Guide Section 1 Reverse Mortgage / HECM Basics
RM / HECM Guide Section 2 RM / HECMs and your finances
RM / HECM Guide Section 3 Reverse mortgage and your family
You got my attention when you said that it's possible to reverse mortgage loans by paying the loan off in full at any time. My husband said that he's interested to know if he can consider reversing his mortgage loans because he wanted a more secure financial status in his retirement days. We'll make sure to talk to a professional to get help in the process of reversing mortgage loans.
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