In an evolving financial landscape, reverse mortgages have emerged as a valuable tool for many retirees seeking to enhance their post-retirement finances. However, as with any financial instrument, the specifics can be intricate, especially when considering the implications for both borrowers and their spouses. For couples, the scenario where only one party becomes the borrower can pose a multitude of questions and concerns.
Understanding the role and rights of a non-borrowing spouse in a reverse mortgage loan is crucial. It ensures that individuals are well-equipped to make informed decisions that safeguard their housing security and future financial stability. This guide delves into the comprehensive nuances of the non-borrowing spouse’s position within the realm of reverse mortgages. Whether you’re contemplating a reverse mortgage, already involved in one, or simply wish to be informed, this guide serves as an essential resource.
There are two classes of non-borrowing spouses as they relate to a HECM (Home Equity Conversion Mortgage) reverse mortgage loan. One is an eligible non-borrowing spouse and the other is an ineligible non-borrowing spouse. To be an eligible non-borrowing spouse, the spouse must be marred to the borrower at the time when the borrower applied for and closed the reverse mortgage loan.
While it is commonplace for both partners in a couple to jointly apply for a reverse mortgage, there can be instances where only one spouse meets the eligibility criteria. In such scenarios, only one spouse becomes the borrowing individual, leaving the other as a non-borrowing spouse. The wellbeing and legal safeguards for the non-borrowing spouse, in the event of the borrowing spouse encountering unforeseen circumstances, hinge on various determinants.
Legislation surrounding this matter has undergone several revisions over time. As it stands now, uniform protections are in place for all qualifying non-borrowing spouses, irrespective of when the reverse mortgage was procured.* HUD permits eligible Non-Borrowing Spouses the opportunity to continue to live in the mortgaged property after the death of the last remaining HECM borrower or when the last surviving borrower moves into a healthcare facility for more than 12 consecutive months provided they meet all the established requirements and the HECM is not in default for any other reason (such as failure to pay required property taxes or hazard insurance payments).
The phrase “non-borrowing spouse” refers to an individual who is married to a person who has taken out a reverse mortgage, but is not themselves a party to the loan.
The most common reason a non-borrowing spouse is not included as a co-borrower at the time of the loan application is that they are under the age requirement of 62, which is a requirement for HECM loans.
Should a non-borrowing spouse satisfy the stipulations set forth by the Department of Housing and Urban Development (HUD), they are eligible for certain rights and protections in case the borrowing spouse dies or needs to vacate the home for a prolonged duration.
To be considered eligible, a non-borrowing spouse must:
If a borrower has to move to a long-term care facility for more than 12 consecutive months, the non-borrowing spouse can continue living in the home without repaying the loan, provided they adhere to the loan terms which generally include maintaining the home and staying current on property tax and homeowner’s insurance payments.
Death of the Borrower
A reverse mortgage generally becomes due and payable following the death of the last surviving borrower. However, when an eligible non-borrowing spouse is involved , the loan enters a deferral period, in which the lender will not try to collect and all proceeds will be frozen.
Upon the death of the borrower, or a borrower who has moved to a care facility for more than 12 consecutive months, eligible non-borrowing spouses can stay in the home provided the following qualifications are met:
Thanks to recent regulatory enhancements, eligible non-borrowing spouses are afforded several protections to help maintain their residency in the home, provided they adhere to the terms of the mortgage agreement. These protections include:
Prior to the Mortgagee Letters released by HUD in 2014 and 2021, the non-borrowing spouses, not being co-borrowers in a HECM agreement, were at risk of losing their homes unless they managed to settle the loan that had been left behind by their deceased partners. These revised directives now grant non-borrowing spouses the breathing space to mourn without the immediate threat of having to vacate their residences amidst the death or severe illness of the borrowing spouse.
The particulars of the 2021 Mortgagee Letter delineate the safeguards in place for qualified non-borrowing spouses, which are:
Despite these provisions offering substantial protections to non-borrowing spouses, it remains prudent to seek guidance from professionals such as estate lawyers, financial advisors, or insurance representatives to fortify your security and that of your family.
A non-borrowing spouse can lose eligibility to remain in the home under various circumstances including:
Understanding the complexities surrounding non-borrowing spouses and reverse mortgages is crucial. It is always recommended to consult with a reverse mortgage professional to navigate your specific circumstances effectively. Ensure that you stay informed and up-to-date to make the best decisions for your financial future.
*Pre August 4, 2014 Non-Borrowing Spouses
Although non-borrowing spouses prior to August 4, 2014 had few options other than paying off the reverse mortgage or moving out after the borrower had passed, lenders can now assign these pre-Aug. 4, 2014 loans to HUD. This “ Mortgagee Optional Election Assignment” (MOE Assignment) benefits both the non-borrowing spouse and the lender. The non-borrowing spouse gets to remain in the home, again providing they continue to pay property taxes and homeowner’s insurance, maintain the home, and otherwise comply with the loan terms.
And the lender is made whole by HUD without having to carry out a foreclosure.
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“Texas Mortgage Broker Disclosure Figure: 7 TAC §80.200(b) “CONSUMERS WISHING TO FILE A COMPLAINT AGAINST A COMPANY OR A RESIDENTIAL MORTGAGE LOAN ORIGINATOR SHOULD COMPLETE AND SEND A COMPLAINT FORM TO THE TEXAS DEPARTMENT OF SAVINGS AND MORTGAGE LENDING, 2601 NORTH LAMAR, SUITE 201, AUSTIN, TEXAS 78705. COMPLAINT FORMS AND INSTRUCTIONS MAY BE OBTAINED FROM THE DEPARTMENT’S WEBSITE AT WWW.SML.TEXAS.GOV. A TOLL-FREE CONSUMER HOTLINE IS AVAILABLE AT 1-877-276-5550. THE DEPARTMENT MAINTAINS A RECOVERY FUND TO MAKE PAYMENTS OF CERTAIN ACTUAL OUT OF POCKET DAMAGES SUSTAINED BY BORROWERS CAUSED BY ACTS OF LICENSED RESIDENTIAL MORTGAGE LOAN ORIGINATORS. A WRITTEN APPLICATION FOR REIMBURSEMENT FROM THE RECOVERY FUND MUST BE FILED WITH AND INVESTIGATED BY THE DEPARTMENT PRIOR TO THE PAYMENT OF A CLAIM. FOR MORE INFORMATION ABOUT THE RECOVERY FUND, PLEASE CONSULT THE DEPARTMENT’S WEBSITE AT WWW.SML.TEXAS.GOV.””
Oregon Applicants: ORS 86A.196 at the conclusion of a reverse mortgage, borrower must repay the loan & may have to sell the home or repay the loan from other proceeds; charges assessed with the loan may include an origination fee, closing costs, mortgage insurance premiums & servicing fees; the loan balance grows over time & interest is charged on the outstanding balance; borrower is responsible for property taxes, hazard insurance & home maintenance, failure to pay these amounts may result in the loss of the home; interest on a reverse mortgage is not tax deductible until the borrower makes partial or full re-payment. Not tax advice
Reverse Mortgages are neither “endorsed” nor “approved” by the Federal Government. The FHA (Federal Housing Administration) provides certain insurance benefits for lenders and borrowers in connection with the lender’s HECM loans; the FHA does not make or originate loans. It is strongly advised that you consult with your family and / or trusted financial planner when considering any reverse mortgage loan.
This material is not from HUD or FHA and has not been approved by HUD or a government agency.
