What changes did HUD just make to help spouses of reverse mortgage borrowers?
Great Question! HUD has always had different guidelines for eligibility of deferral of the call provisions of the loan when a spouse was not a borrower on the loan. This typically happened when the borrower was old enough to be eligible for a reverse mortgage, but the spouse was not 62 or over.
Prior to 2014, married couples with one spouse under the age of 62 were required to have the younger spouse be removed from title and the older spouse had to take out the reverse mortgage in their name alone. This created issues for the younger spouse when the older spouse passed because the loan became due and payable at that time. If the younger spouse was not able to refinance the loan with a new loan or sell the home, they faced a foreclosure action.
In 2014 (effective in 2015), HUD changed this policy by introducing the “eligible non-borrowing spouse” distinction. With this new distinction, spouses of reverse mortgage borrowers were given a deferral period if the borrowing spouse were to die and they were allowed to remain in the home for as long as they lived and met the reverse mortgage requirements (paid the taxes, insurance and any other property obligations such as HOA dues in a timely manner). The changes that HUD just made were to further enhance this class of individuals and give them much more protection.
IF HUD FIXED THE NON-BORROWING SPOUSE ISSUE IN 2014, WHAT OTHER CHANGES WERE NECESSARY?
HUD’s rule changes that were announced in 2014 and effective in early 2015 did not go far enough to protect spouses. For one, it did not protect any of the spouses of loans closed before that time. In other words, if you closed a loan prior to the change, your loan was still due and payable if your borrowing spouse passed.
The changes that took effect in 2015 only covered those loans that closed from that time forward. All spouses of borrowers that received the loan prior to 2015 were still not covered and if their spouse passed, even after the HUD changes their loan was called due and payable at that time. This was due to the fact that with the new changes, all new loans were based on the age of the younger spouse, even though they were not a borrower on the loan. Because they had an eligible status for deferral, their age was taken into consideration when the loan eligibility was determined.
Loans closed prior to this time when the underaged spouse was removed from title did not take the age of the younger spouse into consideration in the age calculation. Therefore, a 77-year-old borrower with a 55-year-old spouse would receive a lot more money before the 2014 changes but that spouse was also not eligible for deferral of the call provisions when their spouse passed.
And secondly, the rule as written in 2014 and made effective in 2015 did not protect spouses of borrowers who were forced to leave the home due to medical reasons. If the borrowing spouse were forced to leave the home for more than 12 consecutive months due to the need for hospice care, the loan would be called due and payable by the lender under the HUD rules due to the move being considered permanent. This was creating a lot of problems for spouses who met all other conditions, but their spouse did not pass, but rather needed to be placed into assisted living for medical reasons and then their loan became due and payable under the HUD rules.
HUD just fixed both of these issues with their new treatment of non-borrowing spouses as outlined in HUD Mortgagee Letter (ML) 2021-11 which further extended protections granted by HUD’s previous guidance on the subject in HUD Mortgagee Letter (ML) 2019-15. Effective immediately, all non-borrowing spouses, not just the ones whose loans began after the 2014 change date, now have the non-borrowing spouse deferral protection.
This is a huge comfort and protection for spouses who were not on the loan that their spouse received and have been fearing that they would lose their ability to remain in their homes. Furthermore, HUD just removed the provision that the loan could still be called due and payable if the borrowing spouse had to leave the home for more than 12 months due to medical reasons for all non-borrowing spouses who held this designation at the time the loan was closed.
In other words, the non-borrowing spouse is protected from having to leave their home due to the call provision due to their spouse’s death and the medical need to leave the home now. This is especially important because HUD made the determination that they would cover spouses from before the time that their age was also considered in loan amount calculations, so they actually got an advantage in additional funds availability as well.
WHAT DOESN’T THIS COVER?
Keep in mind that this still does not cover spouses who were not married to the borrower at the time the loan closed. New individuals who became spouses after the closing of the loan, are still not covered under the existing reverse mortgage. For a person to be considered a spouse, the borrower must consider them a spouse and declare them a spouse when the loan is closed.
In other words, borrowers cannot try to add someone claiming them to be a common law spouse at the time the loan closed but they stated they were unmarried at the time. For newly married spouses, the only way to still ensure that they are covered by the terms of a reverse mortgage if that is your goal, is to obtain a new loan in both your names or with them being a current “eligible non-borrowing spouse” now at the time you take out the new loan if they are not yet 62 years of age.
Are there any other changes or things you need to know?
Non-borrowing spouses cannot access the loan after the borrower passes. This means that if there are still funds available on the line, they remain unborrowed and do not need to be repaid when the loan is closed but the non-borrowing spouse cannot make additional draws against the line. The non-borrowing spouse may remain in the home for as long as he or she desires if they meet the eligibility criteria.
The non-borrowing spouse is no longer required to secure title to the property within 90 days of the passing of the borrower if the spouse does not have title to the property. This is another improvement as Probate and other issues often stretched transferring title to the remaining spouse beyond the old 90 requirements by HUD.
We recommend that borrowers add the non-borrowing spouse back to title as soon as the loan closes so that there are no problems later (for those spouses removed from title prior to 2015, they are no longer required to be removed as of the 2014 changes). This was more of an issue for the loans closed prior to 2015 when non-borrowing spouses needed to come off title but there is no reason to keep them off title after the loan closes.
HUD allows borrowers to add anyone they want to title with them if they are also still on title and still living in the home. We also recommend that borrowers write letters authorizing lenders to deal with non-borrowing spouses in all matters relating to the loan so that the non-borrowing spouse has full authorization to deal with the lender on the borrower’s behalf.
If you have a non-borrowing spouse, you should file all paperwork with the lender to allow your spouse full access to the lender and the loan information while both spouses are still alive when everyone is available to sign any authorizations required.
To be eligible for deferral of a reverse mortgage, you must be married and living in the home at the time the loan closes and still living in the home as your primary residence at the time the borrowing spouse passes or permanently moves to a medical facility.
And finally, the non-borrowing spouse has the same responsibilities as the borrower with respect to the fact that he/she must pay the taxes and insurance on time and maintain the home in a reasonable manner.
An eligible non-borrowing spouse who does this can stay in the home for as long as he/she lives and wants to remain.
Ineligible = No Deferral Granted
Ineligible non-borrowing spouses might be those who don’t occupy the property (separated borrowers who do not live in the home), were not married to the borrower at the time the loan was closed, or because of familial or other issues cannot get title to the home, (perhaps the home goes to other heirs upon the death of the borrower).
They would not be eligible for the deferral and therefore the loan would be due and payable upon the passing of the borrower. Hope this helps.
Do both spouses need to be 62 for a reverse mortgage?
In most instances the answer is no. Recent HUD rule changes implemented a deferral option for eligible non-borrowing spouses that also now protects past non-borrowing spouses. This deferral option allows a non-borrowing spouse to remain living in the property even if the eligible borrowing spouse predeceases them or leaves the home for medical reasons. Previously the non-borrowing spouse would have to pay off the reverse mortgage or potentially move out of the home. Non-HUD insured reverse mortgages do not allow for deferral periods and certain states such as Texas do not permit a non-borrowing spouse on a reverse mortgage loan.
Can my new spouse be added to my Reverse Mortgage?
No. If you obtained a reverse mortgage loan prior to your current marriage, your new spouse cannot be added to the loan. The only way to protect your new spouse with a reverse mortgage is if you refinance to a new loan that would consider both of your ages in the calculations. If you add your new spouse to title, that does not alter the terms of the existing reverse mortgage but there would also be no deferral for your spouse because they were not accounted for on the original loan.
What happens if a spouse dies with a reverse mortgage?
What transpires upon the death of one spouse will depend upon several factors including how the loan was set up initially, who was a borrower, and under what guidelines were in effect at that time. If both spouses were borrowers on the loan, and one spouse is still living in the property after the passing of the other spouse, nothing happens with the loan as a result.
The reverse mortgage would not become due and payable until the passing of the last surviving spouse. If the spouse who passed away was the only eligible borrower and the surviving spouse was an ineligible non-borrowing spouse or if the loan were taken out prior to the deferral option being implemented by HUD, the loan would become due and payable.
If the surviving spouse was an eligible non-borrowing spouse, was only ineligible because the loan was closed prior to 2015 and in all other ways would have been an eligible non-borrowing spouse and remained eligible, they can contact their loan servicing and file a for the deferral option and the loan would remain in good standing allowing the surviving spouse to remain in the property for the duration of their lifetime.
What is an eligible non-borrowing spouse?
An eligible non-borrowing spouse is an individual who is married to a reverse mortgage applicant at the time the loan closes (or the borrower declares is their married partner) who is not going to be a borrower of that loan but is living in the subject property as their primary residence. A spouse can be an eligible non-borrowing spouse by choice or due to being under the age of 62.
The eligible non-borrowing spouse’s age is factored into the loan to value calculation on the reverse mortgage loan because of the deferral option that they are eligible for. An eligible non-borrowing spouse can become ineligible over time if they move out of the property during the period that the reverse mortgage is in place. This means that it is possible for a spouse to start out as eligible but become ineligible for the deferral over time.
Any non-borrowing spouse (whether eligible or ineligible) cannot access any reverse mortgage proceeds during the borrower’s lifetime or after their passing if they are in the deferral period. Only borrowers of the reverse mortgage loan can access loan proceeds.
What is an ineligible non-borrowing spouse?
An ineligible non-borrowing spouse is an individual who is married to a reverse mortgage borrower who does not live in the subject property. Common examples of this are spouses who are separated or who choose to live in separate homes while still being married.
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