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  • Understanding the Reverse Mortgage Non-Borrowing Spouse

    When a spouse is not a borrower in a HECM transaction, he or she is referred to as a non-borrowing spouse (NBS). This is often due to the spouse not meeting the age requirement of 62. Understanding Reverse-2021

    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 [ML 2014-07]

    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 [ML 2015-02]

    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.

    Frequently Asked Questions

    • Can a non-borrowing Spouse remain on title?

    YES. HUD made additional regulatory changes in 2017 that redefined the terms “mortgagor” and “borrower.”  That change allowed an NBS to remain on title as a mortgagor. Keep in mind, this does not make them a borrower in any way.

    • What are the obligations off the non-borrowing Spouse?

    After the last borrower dies or permanently vacates the home for mental or physical illness, the NBS will need to make sure to keep up with all the obliga­tions of the HECM including the payment of property charges. While they may be able to remain in the home, they will need to ensure the loan does not become due and payable for other reasons.

    • Can a non-borrowing Spouse draw from the line of credit?

    NO.  the NBS is not a borrower or party to the loan in any way. No disbursements can be made during the deferral period other than repair charges paid through a repair set-aside. This means that the line-of-credit and monthly payments will cease, including a Life Expectancy Set-Aside (LESA) used to pay property charges.

    • What are the exceptions to the rule?

    These protections only apply to HECM loans with FHA Case numbers assigned on, or after, August 4, 2014. For loans originated prior to that date, the lender has the option, but not the obligation, to assign the loan to HUD. This assignment of the loan may provide similar protection for the NBS.

    For more information on reverse mortgage guidelines, please purchase the book Understanding Reverse, and subscribe to my blog in the upper right corner of this page.

    Dan Hultquist