FHA Announces Changes to Due and Payable Policies

July 6, 2015

In the past two years, the FHA Home Equity Conversion Mortgage Loan program has seen a number of changes. Recently the FHA and HUD have announced further changes to the HECM loan program, this time concerning the circumstances under which a HECM loan becomes due and payable and what happens at that time.

A 2015 FHA Mortgagee Letter, “Home Equity Conversion Mortgage (HECM) Due and Payable Policies”, and affects all FHA HECM loans that become due and payable on or after July 1, 2015.
Under the new rules there’s a requirement for mortgagees to provide HUD notice of a HECMs Due and Payable status, plus a new requirement for mortgagees to provide HUD notice of the initiation of foreclosure, “curtailment of debenture interest” for missed deadlines and other alterations.

FHA has also clarified its position on when HECM loans with case numbers issued before August 4, 2014 are considered due and payable without the approval of HUD. The mortgagee letter announces this is true when one of the following conditions apply:

–a mortgagor died and the property is no longer the principal residence of at least one surviving mortgagor;

or

–a mortgagor conveyed all of their title in the mortgaged property and no other mortgagor retains title to the property.

The mortgagee letter also states, “A HECM with a Case Number issued before August 4, 2014, is considered due and payable with HUDs approval, if one of the following conditions applies:

–no surviving mortgagor maintains the property as their principal residence;

–a mortgagor fails to occupy the property for a period of more than twelve consecutive months because of physical or mental illness, and the property is not the principal residence of at least one other mortgagor;

or

–an obligation of the mortgagor under the HECM is not fulfilled.”

“Notwithstanding the above,” the mortgagee letter adds, “for a HECM with a Case Number issued before August 4, 2014, where the last surviving mortgagor is survived by a Surviving Non-Borrowing Spouse, mortgagees must follow the requirements of ML 2015-03 to determine eligibility for Due and Payable status.”

There are other aspects of recent HECM loan program changes that we’ll cover in future articles, including what happens if a HECM borrower fails to pay property taxes and how new FHA loan rules dictate how and when the lender must take action.