The coronavirus (COVID-19) outbreak has resulted in extensive health and economic turmoil for millions of Americans, including older homeowners and others. If you have an FHA-insured reverse mortgage and are facing foreclosure, federal protections and policies can provide temporary relief, allowing you to stay in place. A foreclosure moratorium is in effect until June 30, 2020, and you can ask your servicer to delay calling the loan due, thereby postponing a foreclosure, for up to six months. If you need more time, you can potentially get up to six more months if the U.S. Department of Housing and Urban Development (HUD) approves an extension.
In a regular mortgage, the borrower gets a lump sum of money from a lender and makes monthly payments towards paying the debt back, plus interest. In a reverse mortgage, the borrower receives periodic payments or gets a line of credit upon which the borrower makes draws (or a combination of these options). Unlike a regular mortgage, the total amount owed on a reverse mortgage gets bigger over time as the borrower receives payments, and interest and fees get added on to the loan. The lender's payment to the borrower may also be in the form of a lump sum, subject to some limitations.
The Federal Housing Administration (FHA), which is part of HUD, insures most reverse mortgage loans in this country through its Home Equity Conversion Mortgage (HECM) program. Some private lending institutions have also developed proprietary reverse mortgages. These reverse mortgages are backed by the lender that offers them, rather than FHA. (This article focuses on HECMs. If you have a proprietary reverse mortgage, call your lender to find out if any foreclosure relief options are available.)
With a HECM, the lender can accelerate the loan (call it due) when one of the following events happens.
If the lender calls the loan due, the borrower or the borrower's heirs must repay the loan in full (or pay 95% of the current appraised value of the property, whichever is less), give the property to the lender in a deed in lieu of foreclosure, or sell the property for the full amount owed on the loan (or an amount that's at least 95% of the current appraised value of the property, whichever is less). Otherwise, the lender will foreclose.
HUD imposed a foreclosure and eviction moratorium, through December 31, 2020, for homeowners with FHA-insured single-family mortgages, including HECMs. The moratorium doesn’t apply to vacant or abandoned properties, though.
In some circumstances, the lender has to get HUD's permission to accelerate a reverse mortgage loan, like when the borrower permanently moves out, moves out for longer than 12 consecutive months because of physical or mental illness, or doesn’t comply with the requirements of the mortgage. Other times, like upon the borrower’s death or if the borrower sells or transfers the property, the loan becomes automatically due and payable.
Mortgagee Letter 2020-06, official loan servicing guidance from HUD, instructs lenders to, upon a borrower's request, delay submitting a request to HUD to call a loan due and payable for up to six months. An additional extension of up to six months is available with HUD approval.
For loans that have become automatically due and payable, entered into a deferral period, or became due and payable with HUD approval, the lender must, upon the borrower's request, also delay foreclosure for up to six months. If needed, an additional period of up to six months may be approved by HUD.
So, you can delay having to repay a reverse mortgage, and postpone a reverse mortgage foreclosure, for as long as a year. To get the delay, contact your loan servicer and ask it to hold off on calling the loan due and payable. You won’t have to provide any supporting documentation to get the delay.
During the postponement, the servicer must forgo late charges, fees, and penalties, if any. Also, the term of either the initial or the additional extension period may be shortened at your request.
Keep in mind that official HECM guidance and options during and following the coronavirus pandemic might change. If your reverse mortgage is in default and you need help avoiding a foreclosure, consider talking to a foreclosure attorney to get the latest information. A HUD-approved housing counselor can also provide you with information (for free).