FHA Revises Requirements for HECM Deferral Period and MOE Assignment

FHA recently published Mortgagee Letter 2021-11 (ML 2021-11), amending the requirements for the deferral period and the Mortgagee Optional Election (MOE) Assignment under the HECM program.  ML 2021-11 applies to all HECM loans, regardless of case number assignment date, that comprise a valid first lien security interest in real property under applicable state law.  Mortgagees may begin to follow the new guidelines immediately, but must comply with the new guidelines on and after September 3, 2021.

ML 2021-11, in part, eliminates the requirement that an eligible non-borrowing spouse must establish that he or she has marketable title or other legal right to remain in the property in order to qualify for a deferral period.  Additionally, ML 2021-11 expands the criteria to begin a deferral period for eligible non-borrowing spouses.  Specifically, for HECMs with a case number assigned on or after August 4, 2014, if the property is no longer the principal residence of a borrower due to the borrower’s residence in a health care facility for more than 12 consecutive months but remains the principal residence of an eligible non-borrowing spouse and all qualifying attributes are met, the due and payable status of the HECM may be deferred as long as the eligible non-borrowing spouse continues to meet the applicable requirements.  Previously, the deferral period was only available when the last surviving HECM borrower died.

Moreover, for HECMs with case numbers assigned before August 4, 2014, ML 2021-11 revises the definition of eligible surviving non-borrowing spouse and it expands the criteria for MOE Assignment eligibility to include HECMs eligible to be called due and payable under the terms of the original mortgage due to the property no longer being considered the principal residence of a borrower due to the borrower’s residence in a health care institution for more than 12 consecutive months.