Moe Assignment Definition

On August 4, 2014 HUD implemented a new policy for reverse mortgage borrowers with ineligible or “non-borrowing” spouses that allowed the eligible non-borrowing spouse to remain in the home even after the death of the borrowing spouse for as long as they lived (providing they met certain requirements) but it did not make any changes for loans originated prior to that time.  Under the August 2014 changes, borrowers with non-borrowing spouses who closed reverse mortgages prior to that time were still subject to the loan being called due and payable upon the death of the borrower on the loan.

HUD’s rationale for the new rules and the treatment of previous loans was that the old Principal Limit (the amount that the borrowers would receive on the reverse mortgage) was determined based on the older, eligible borrower for loans closed prior to August 2014 while the new Principal Limits (loan amounts) after August of 2014 would be determined based on the age of the younger, ineligible borrower.

In this manner, if you had a borrower all the way down to 18 years of age, the amount of interest that they could accrue over a life time of living in the property without having to make a payment would be factored into the amount of money the borrower was originally given.

This move was intended to protect non-borrowing spouses and the HUD MIP fund so borrowers’ benefits would not be calculated from the age for example of a 80 year old borrower but then have a 27 year old spouse who could still live there for another 50 years accruing interest (and before you think this could not happen, we have had bigger age spreads than this proposed to us at this company!).

This move alone did not seem to satisfy AARP and others who brought lawsuits against HUD for calling loans due and payable when borrowers were not allowed to remain in a home payment free after the older spouse passed.  Fast forward to today, January 29, 2015.

Due to the outcome of recent court cases, HUD announced today that they have a new guidance for lenders to allow non-borrowing spouses to remain in the home.  HUD has now made it very clear that lenders have the “option” to assign a loan to HUD upon the death of the last surviving borrower in the case of a non-borrowing spouse which would mean that lenders no longer have to call the loan due and payable at that time.

It seems that the reason they lost in court was that it was determined that HUD required them to call the loan due and payable rather than giving the lender the option of doing so (while HUD maintains that the lenders have always had the option).

The announcement by HUD today does NOT automatically grant all non-borrowing spouses prior to August 4, 2014 the right to stay in the home after the death of the HECM borrowing spouse.  In fact, HUD recognizes that lenders have contractual obligations and the Mortgagee Letter specifically states that nothing contained therein gives any surviving non-borrowing souse any additional rights including the right to remain in the property.

It gives lenders the option to either call the loan due and payable or to utilize the Mortgagee Optional Election Assignment and assign the loan to HUD.  If the lender chooses not to utilize the Assignment, then they are required to notify HUD and still begin foreclosure within six months from the date of the death of the last surviving borrower or the date of the Mortgagee Letter (January 29, 2015), whichever is later.

While this is a bit of good news, non-borrowing spouses on loans originated prior to August 4th, 2014 should not construe this Mortgagee Letter as a “all free” announcement as it simply does not do that.

Mortgagee Letter 2015-03 only references non-borrowing spouses, there is no provision for siblings or other family members who also co-own and cohabitate a property.  In fact, it specifically states that when no non-borrowing spouse exists, all existing requirements are still enforced.  Here are the exact requirements the non-borrowing spouses must meet per HUD in order to be considered for the new deferral period:

“Non-Borrowing Spouse” means the spouse of a borrower who is not also a borrower.

An “Eligible Surviving Non-Borrowing Spouse” means a Non-Borrowing Spouse of a HECM Borrower where the HECM was assigned an FHA Case Number prior to August 4, 2014 and who:

6 1. Was either:

  1. legally married – as determined by the law of the state in which the spouse and borrower reside(d) or the state of celebration – to the HECM borrower at the time of loan closing and who remained married to the HECM borrower until the HECM borrower’s death; or
  1. engaged in a committed relationship with the borrower akin to marriage but was prohibited, at the time of HECM loan origination, from legally marrying the HECM borrower based on the gender of both the borrower and Non-Borrowing Spouse, but was legally married prior to the death of the borrower, as determined by the law of the state in which the spouse and borrower reside(d) or the state of celebration, to the HECM borrower, and remained married until the death of the borrowing spouse;
  1. Currently resides and resided in the property secured by the HECM as his or her principal residence at origination of the HECM and throughout the duration of the HECM borrower’s life; and
  1. Who has or is able to obtain – within 90 days following the death of the last surviving borrower – good, marketable title to the property or a legal right (e.g., executed lease, court order, etc.) to remain in the property for life.

“Principal Residence” is defined as the dwelling where the borrower and, if applicable, Non-Borrowing Spouse maintains his or her permanent place of abode, and typically spends the majority of the calendar year. A person may have only one Principal Residence at any one time.

  • The Property shall be considered to be the Principal Residence of any borrower who is temporarily in a health care institution provided the borrower’s residency in a health care institution does not exceed twelve consecutive months.
  • The Property shall be considered to be the Principal Residence of any Non-Borrowing Spouse, who is temporarily in a health care institution, as long as the Property is the Principal Residence of his or her borrower spouse, who physically resides in the property.
  • During a MOE Assignment Deferral Period, the Property shall continue to be considered to be the Principal Residence of any NonBorrowing Spouse, who is temporarily in a health care institution, provided the Eligible Surviving Non-Borrowing Spouse physically occupied the property immediately prior to entering the health care7 institution and the Eligible Surviving Non-Borrowing Spouse’s residency in a health care institution does not exceed twelve consecutive months.

If the non-borrowing, surviving spouse fails to meet the requirements above at any time during the deferral period, then the deferral period would terminate and the loan would become due and payable.

The announcement goes on to state that non-borrowing spouses still have the rights and remedies such as paying off the HECM loan at the current amount owed or 95% of the current market value of the home, whichever is less, sell the home, or use any other rights under the program.  Nothing in the Mortgagee Letter interrupts or interferes with the borrower’s estate or heirs’ rights.

The bottom line is that non-borrowing spouses of HECM borrowers are not automatically guaranteed that they will still be able to stay in the home if the reverse mortgage was taken prior to August 4, 2014, but at least now there is a possibility of said deferral and so spouses who find themselves in this situation should certainly check with their lender to see if they might be able to take advantage of the new options.

ML 2015-03 introduced the Mortgagee Optional Election (MOE) Assignment option–an alternative path to claim payment for mortgagees holding certain HECMs with eligible surviving NBS. ML 2015-12 rescinded that; the MOE Assignment option is no longer available to mortgagees; there is no more MOE.

Until HUD provides further guidance as to how servicers should handle HECMs with NBS whose loans were assigned FHA Case Numbers prior to August 4, 2014 (which further guidance HUD is expected to publish in the relatively near future), members should follow the instructions provided in FHA Info #15-33 as to how to request the above noted 60-day extension for eligible HECMs.

The text of Mortgagee Letter 2015-12 can be found at: https://portal.hud.gov/hudportal/documents/huddoc?id=15-12ml.pdf

The text of FHA Info #15-33 can be found at: https://portal.hud.gov/hudportal/documents/huddoc?id=SFH_FHA_INFO_15-33.pdf

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References

[Almagro 2011] Almagro, J.C., Beavers, M.P., Hernandez-Guzman, Maier,J., Shaulsky, J., Butenhof, K., Labute, P., Thorsteinson, N., Kelly, K., Teplyakov, A., Luo, J., Sweet, R., Gilliland, G.L.; Antibody Modeling Assessment; Proteins: Struct. Func. Bioinf. 79 (2011) 3050–3066.

[Feldman 2010] Feldman, H.J., Labute, P.; Pocket Similarity: Are Alpha Carbons Enough? J. Chem. Inf. Model. 50 (2010) 1466–1475.

[Labute 2008] Labute, P.; Protonate3D: Assignment of Ionization States and Hydrogen Coordinates to Macromolecular Structures; Proteins 75 (2008) 187–205.

[Labute 2008] Labute, P.; The Generalized Born / Volume Integral (GB/VI) Implicit Solvent Model: Estimation of the Free Energy of Hydration Using London Dispersion Instead of Atomic Surface Area; J. Comput. Chem.29 (2008) 1963–1968.

[Labute 2010] Labute, P.; LowModeMD – Implicit Low Mode Velocity Filtering Applied to Conformational Search of Macrocycles and Protein Loops; J. Chem. Inf. Model. 50 (2010) 792–800.

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