The Reverse Mortgage Non-Borrowing Spouse
A non-borrowing spouse (NBS) is the spouse of a reverse mortgage borrower that will not be a borrower. But the guidelines are not that simple and are commonly misunderstood. Let’s see if I can explain the rules, and why they were created.
The Problem:
Some spouses are not included in the reverse mortgage. Although there are many reasons for this, in most cases this is because they are not old enough (age 62).
Regardless, prior to 2014, these non-borrowing spouses had little protection after the death of the last borrower. If the last borrower died or permanently vacated the home, the loan automatically became due and payable…. even if the surviving spouse was still living in the home. This is no longer the case.
The Solution 1
FHA changed HECM guidelines in 2014 allowing certain “Qualified Non-Borrowing Spouses” to continue living in their home following the death of the last borrower. The “due and payable” status of the mortgage could be deferred if the spouse is “qualified”, meaning 1) they are married at the time of application and continue to be married over the life of the loan, and 2) the Non-Borrowing Spouse occupies the home and continues to occupy the home for the life of the loan.
This created another issue: Having an NBS generally meant the borrower would have access to less funds. This was because the borrower’s available funds became based on the youngest age, which was likely the non-borrowing spouse. This was true whether the NBS was qualified for the deferment or not.
The Clarification 2
Some lenders argued that if an NBS is “NOT qualified”, they shouldn’t be required to use the age of the NBS in the calculation of the borrower’s principal limit. As a result, FHA issued Mortgagee Letter 2015-02 to create new designations – Ineligible and Eligible Non-Borrowing Spouses.
An INELIGIBLE Non-Borrowing Spouse:
• Generally does not occupy the home,
• Is not protected by the “due and payable” deferral provisions, and
• Does not have their age used in the calculation of the borrower’s principal limit
An ELIGIBLE Non-Borrowing Spouse:
• Occupies the home
• May be protected by the “due and payable” deferral provisions, and
• Has their age included in the calculation of the borrower’s principal limit
2021 Changes to NBS Guidelines
There were two significant changes in 2021 that improved protection for non-borrowing spouses.
The first eliminated the requirement for the NBS to “obtain ownership of the property or other legal right to remain in the property” within 90 days after the death of their spouse. This was a big hurdle for a grieving spouse. This now makes it easier to qualify for the due and payable deferral.
The second expanded the criteria that would qualify for the deferral period. Until this mortgagee letter, the borrowing spouse had to die for the spouse to qualify for the deferral. Now, the spouse may still qualify for the deferral if the borrower resides in a health care facility for more than 12 consecutive months.
- Mortgagee Letter 2014-07
- Mortgagee Letter 2015-02
What is a “HECM DEBT CONSOLIDATION?”
HECM Debt Consolidation (HDC) uses a reverse mortgage to leverage housing wealth to pay off existing mortgages, liens against the property, installment debt, and revolving consumer debt.
Why is a HECM superior to a HELOC?
With a HELOC, you get what you pay for,. The typical retiree would be better served by a HECM reverse mortgage which offers a secure and growing line of credit (LOC).
What is a HECM “Cash for Keys” Incentive?
HUD recently updated their Cash for Keys program, upping the ante so to speak. The revised guidelines are significant improvements and represent much-needed changes to the HECM reverse mortgage.
Top-10 Reverse Mortgage Consumer Protections
The federally insured reverse mortgage product known as a Home Equity Conversion Mortgage (HECM) has multiple layers of protection for older Americans. Let's look at the top 10.