Who is an eligible non-borrowing spouse on a reverse mortgage?
There are two classes of non-borrowing spouses. One is an eligible non-borrowing spouse and an ineligible non-borrowing spouse. To become an eligible non-borrowing spouse, the spouse must be married to the borrower when the borrower applies for and closes the loan.
They must also meet all the reverse mortgage requirements that the borrower must meet in that they must live in the home as their primary residence, and if the borrower passes. They are still living in the home; they must continue to pay the taxes and insurance in a timely manner. They must reasonably maintain the house.
If they are on the title after that time, they must obtain the title after the borrower passes. The eligible spouse is not a borrower on the loan, so they cannot access the loan proceeds if funds are still available on the line of credit when the borrower passes. Still, the loan is not due and payable then; it is deferred as long as the eligible spouse meets these conditions.
If HUD fixed the non-borrowing spouse issue in 2014, what other changes were necessary?
HUD’s rule changes, announced in 2014 and effective in early 2015, did not go far enough to protect spouses. For one, it did not cover any spouses of loans closed before that time. In other words, if you completed a loan before 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 who received the loan before 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 because, with the new changes, all new loans were based on the younger spouse’s age, even though they were not borrowers on loans. Because they had an eligible status for deferral, their age was considered when the loan eligibility was determined.
Loans closed before the underaged spouse was removed from the title did not consider the younger spouse’s age 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.
Secondly, the rule, written in 2014 and made effective in 2015, did not protect spouses of borrowers forced to leave home due to medical reasons. If the borrowing spouse were forced to go 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 created many problems for spouses who met all other conditions, but their spouse did not pass but needed to be placed into assisted living for medical reasons. Then, their loan became due and payable under the HUD rules.
HUD’s new treatment of non-borrowing spouses
HUD fixed these issues with their new treatment of non-borrowing spouses as outlined in HUD Mortgagee Letter (ML) 2021-11, further extending 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 considerable comfort and protection for spouses who were not on the loan their spouse received and have feared that they would lose their ability to remain in their homes. Furthermore, HUD removed the provision that the loan could still be called due and payable if the borrowing spouse had to leave 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 go home now. This is especially important because HUD determined that they would cover spouses before their age was also considered in loan amount calculations, so they got an advantage in additional funds available.
What spouses are not covered?
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. Remember that this still does not cover spouses not married to the borrower when the loan closed. New individuals who became spouses after the loan’s closing are still not covered under the existing reverse mortgage.
In other words, borrowers cannot try to add someone claiming to be a common-law spouse when the loan closed, but they stated they were unmarried. For newly married spouses, the only way to still ensure that the terms of a reverse mortgage cover them, 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.
Do you know if there are any other changes or things you need to know?
Non-borrowing spouses cannot access the loan after the borrower passes. This means that if funds are still available on the line of credit, 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 they desire 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 borrower’s passing 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 the title as soon as the loan closes so that there are no problems later (for those spouses removed from the title before 2015, they are no longer required to be removed as of the 2014 changes). This was more of an issue for the loans closed before 2015 when non-borrowing spouses needed to come off the title, but there is no reason to keep them off the title after the loan closes.
HUD allows borrowers to add anyone they want to title if they are 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. In contrast, both spouses are still alive when everyone can sign any required authorization.
To be eligible for deferral of a reverse mortgage, you must be married, living in the home when the loan closes, and still living in the home as your primary residence when the borrowing spouse passes or permanently moves to a medical facility.
Finally, the non-borrowing spouse has the same responsibilities as the borrower concerning the fact that they must pay the taxes and insurance on time and reasonably maintain the home.
An eligible non-borrowing spouse who does this can stay in the home for as long as they live and want 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; therefore, the loan would be due and payable upon the borrower’s passing. I hope this helps.
Do both spouses need to be 62 for a reverse mortgage?
Can my new spouse be added to my Reverse Mortgage?
What happens if a spouse dies with a reverse mortgage?
What is an eligible non-borrowing spouse?
What is an ineligible non-borrowing spouse?
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