The new guidelines from the Consumer Financial Protection Bureau (CFPB) make it easier for people to assume an existing mortgage when their loved one dies. While the 2014 rule requires loan servicers to provide certain information about the mortgage to heirs, the 2018 rule requires lenders to have procedures in place to quickly identify “successors in interest” and communicate with those who have the legal interest in the property.

Entitlement to Loss Mitigation Options

The CFPB rules make it easier for the heir of a home to be added to a mortgage so he or she has the same rights as the primary mortgagor. The lender cannot deny the heir’s request to take over the mortgage by arguing that the heir was not part of the transaction. The successor can obtain account information and seek mortgage modification or loan workout options to pay off the mortgage. The CFPB interpretive rule also applies to other complex family transfers including living trusts from parents to children, legal separation or divorce.

The Ability-to-Repay

The Ability-to-Repay Rule does not apply to a successor who is looking to assume a mortgage. Under the ATR bank rules, the creditor is required to consider whether the borrower has the ability to repay the mortgage. If that rule applied to successors, they would be subject to debt-to-income rules and other eligibility guidelines that would prevent some heirs from getting added to the mortgage. Since heirs are exempt from the ATR requirements, more people are able to keep their loved ones’ mortgaged homes.

The Role of the Lender

The CFPB rules impose several guidelines on the mortgage lenders regarding loan inheritance. For example, the lenders must communicate with the family members having a legal interest in the home and supply them with information on how they can continue making payments. These rules also instruct lenders to find ways of postponing or even stopping a pending foreclosure of the home in question.

The CFPB rules allow beneficiaries to more easily obtain loan workouts, mortgage modifications, and important account information. These rules also give lenders precise instructions regarding the handling of mortgages when a borrower dies.