More Updates to FHA HECM Loan Due and Payable Policies
July 6, 2015
Recently we wrote about changes to the FHA’s “due and payable” policies for Home Equity Conversion Mortgage Loans. But we couldn’t tackle all the changes in just one article. One very important aspect of the HECM loan, which features no monthly mortgage payment and is instead collected in full when the borrower dies, sells the home, or fails to live up to the terms of the HECM mortgage loan agreement.
When a borrower does not live up to those terms, he or she runs the risk of having the HECM loan declared due and payable. Failing to use the home as the primary residence, for example, is one way that can happen. Another is to fall behind on property taxes.
According to FHA Mortgagee Letter 2015-10, “For HECMs that are due and payable, the Due Date is the date when:
–the mortgagee notifies the Secretary that the mortgage became due and payable without HUDs approval;
or
–the Secretary approves the mortgagees request to call the mortgage due and payable.
For HECMs with a Case Number issued on or after August 4, 2014, where there is a deferral of Due and Payable status for an Eligible Non-Borrowing Spouse, the Due Date is the date when the Deferral Period ends.”
It’s not just about determining that the HECM loan is due. There are several reasons why a HECM loan could become due--as mentioned above, non-compliance with the loan agreement is one way, but another is the death of the borrower. In these cases, the new rules say:
“When a mortgage is due and payable as a result of a mortgagors death or a Deferral Period ends as a result of an Eligible Non-Borrowing Spouses death, the mortgagee may accept verbal notification of the death from the heirs or estate for Due and Payable purposes. Mortgagees must still obtain documentation of the death of the mortgagor or Eligible Non-Borrowing Spouse for foreclosure and claim purposes.”
FHA loan rule changes also address cases where the death of the borrower is not the reason for the HECM loan becoming due or at risk of becoming declared due and payable. In situations where the lender must get HUD approval in order to declare the HECM loan due, new requirements apply:
“When HUDs approval is required, the mortgagee must provide the mortgagor(s) with a Due and Payable Notice stating that the mortgagor has 30 days to notify the mortgagee of their intention to either:
–satisfy the HECM;
–sell the property for at least 95% of the appraised value;
–provide the mortgagee with a Deed in Lieu of foreclosure; or
–correct the matter which resulted in the mortgage becoming due and payable.”
FHA loan rule changes include a requirement that the Due and Payable Notice must be sent to the mortgagor within 30 days of receiving HUDs approval to call the HECM due and payable.
“Mortgagees may vary the actual structure of this Notice, but it must:
When a borrower does not live up to those terms, he or she runs the risk of having the HECM loan declared due and payable. Failing to use the home as the primary residence, for example, is one way that can happen. Another is to fall behind on property taxes.
According to FHA Mortgagee Letter 2015-10, “For HECMs that are due and payable, the Due Date is the date when:
–the mortgagee notifies the Secretary that the mortgage became due and payable without HUDs approval;
or
–the Secretary approves the mortgagees request to call the mortgage due and payable.
For HECMs with a Case Number issued on or after August 4, 2014, where there is a deferral of Due and Payable status for an Eligible Non-Borrowing Spouse, the Due Date is the date when the Deferral Period ends.”
It’s not just about determining that the HECM loan is due. There are several reasons why a HECM loan could become due--as mentioned above, non-compliance with the loan agreement is one way, but another is the death of the borrower. In these cases, the new rules say:
“When a mortgage is due and payable as a result of a mortgagors death or a Deferral Period ends as a result of an Eligible Non-Borrowing Spouses death, the mortgagee may accept verbal notification of the death from the heirs or estate for Due and Payable purposes. Mortgagees must still obtain documentation of the death of the mortgagor or Eligible Non-Borrowing Spouse for foreclosure and claim purposes.”
FHA loan rule changes also address cases where the death of the borrower is not the reason for the HECM loan becoming due or at risk of becoming declared due and payable. In situations where the lender must get HUD approval in order to declare the HECM loan due, new requirements apply:
“When HUDs approval is required, the mortgagee must provide the mortgagor(s) with a Due and Payable Notice stating that the mortgagor has 30 days to notify the mortgagee of their intention to either:
–satisfy the HECM;
–sell the property for at least 95% of the appraised value;
–provide the mortgagee with a Deed in Lieu of foreclosure; or
–correct the matter which resulted in the mortgage becoming due and payable.”
FHA loan rule changes include a requirement that the Due and Payable Notice must be sent to the mortgagor within 30 days of receiving HUDs approval to call the HECM due and payable.
“Mortgagees may vary the actual structure of this Notice, but it must:
- state that an obligation of the mortgagor has not been met;
- state that failure of the mortgagor to comply with the terms of the HECM has resulted in the loan becoming due and payable;
- provide notice of the availability of Housing Counseling; and
- provide notice of any available loss mitigation options the mortgagee may offer.”
Do you know what's on your credit report?
Learn what your score means.
