The FHA announced an extended foreclosure moratorium, initially lasting until May 19, 2018, later extended until August 16, 2018, and then extended again until September 15, 2018, for certain properties located in Puerto Rico and the U.S. Virgin Islands that were affected by Hurricane Maria. The FHA previously implemented a moratorium for foreclosures on regular mortgages, but the freeze now applies to reverse mortgages on properties in Presidentially-Declared Major Disaster Areas as well.
A Home Equity Conversion Mortgage (HECM), commonly called a “reverse mortgage,” is a type of mortgage in which the homeowner receives periodic payments from the lender. (In a regular “forward” mortgage, the borrower gets a lump sum upfront and steadily pays it back.) The payments to the homeowner in a reverse mortgage become the loan.
All HECMs are FHA-insured. The insurance kicks in if the lender accelerates the loan (calls it due) and the home isn't worth enough to pay back the lender in full through a foreclosure sale. In those cases, the FHA compensates the lender for the loss. (To learn more about how HECMs work, see What's a Reverse Mortgage?)
When a foreclosure moratorium is in place, the loan servicer can’t start or continue a foreclosure.
According to FHA, the current freeze on foreclosures applies to the initiation of foreclosures—and foreclosures already in process—on HECMs that have become due and payable for reasons other than the death of the last surviving borrower and eligible non-borrowing spouse.
So, the current moratorium stops a foreclosure if the foreclosure is happening because, for example, the borrower failed to:
To qualify for the moratorium, the property must be located in a Presidentially-Declared Major Disaster Area of Puerto Rico or the U.S. Virgin Islands. According to FHA, the moratorium applies to those counties declared eligible for Individual Assistance by the Federal Emergency Management Agency (FEMA).
To learn about foreclosure moratoriums after a natural disaster for people with other kinds of mortgages, see Help for Homeowners Facing Foreclosure After a Natural Disaster.
Effective date: March 19, 2018