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Reverse Mortgage Update: HUD Throws a Lifeline to Surviving Non-Borrowing Spouses

National Consumer Law CenterVia the National Consumer Law Center,

The U.S. Department of Housing and Urban Development (HUD)’s newly revised policy provides spouses of reverse mortgage borrowers with the most workable option to date to prevent surviving spouses’ evictions and homes from foreclosures. HUD’s Mortgagee Letter 2015-15 affirms that reverse mortgage lenders now have the option to assign a loan to HUD if there is a surviving spouse living in the home, without requiring the spouse to pass the “Principal Limit Test” or “Principal Limit Factor Test.” This criterion was the biggest hurdle for non-borrowing spouses to meet under previous versions of the HUD policy.

The non-borrowing spouse must still satisfy several criteria in order for the loan to be assigned to HUD. These include being able to obtain, within 90 days following the death of the borrower, title or the legal right to remain in the home. In addition, any default on property taxes or homeowner’s insurance must be resolved before the loan can be eligible for assignment.

If the loan is assigned to HUD under the MOE Assignment option (see Mortgagee Letter), the due and payable status of the loan will be deferred until the death of the spouse. Though the spouse is allowed to stay in the home, she will not receive any proceeds from the reverse mortgage (Home Equity Conversion Mortgage or HECM). Additionally, during the deferral period, the spouse is obligated to pay taxes and insurance, maintain the property, and meet the other requirements of the mortgage.

More information can be found on HUD’s website.

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