In response to recent court rulings and mounting pressure from both consumer groups and the reverse mortgage industry, FHA has just announced changes to their policies on non-borrowing spouses. Until August 4, 2014 couples had the option of taking a reverse mortgage with only one spouse listed as a borrower. The other spouse was typically under the required age of 62, and would be termed a non-borrowing spouse. This meant that in the event of the borrower’s death, the non-borrowing spouse would be forced to repay the loan or face foreclosure. As of August 4th, this changed. Now the younger spouse is protected in the event that the older spouse passes away. The new rules allow the non-borrowing spouse to remain in the home, provided they continue to maintain it as their primary residence and pay the taxes and insurance.
Courts have recently ruled that FHA did not go far enough in this rule change because it was not retroactive and did not include any loans funded prior to August 4th. After continued prodding from a judge, the industry and consumer advocates, FHA has modified their decision. Mortgagees (lenders) now have the option to delay calling the Home Equity Conversion Mortgage due and payable when there is an eligible non-borrowing spouse.
Mortgagee Letter 2015-03 take effect immediately and creates the Mortgagee Optional Election Assignment. This allows the lender to assign HECM’s with an eligible NBS to HUD upon the death of the last surviving borrower, allowing the eligible surviving spouse the right to remain in the home. To qualify for this deferral period, the eligible surviving non-borrowing spouse must:
Have been legally married to the HECM borrower, or engaged in a committed relationship akin to marriage at the time of closing; currently reside in the property secured by the HECM, and obtain good marketable title to the property within 90 days following the death of the last surviving HECM borrower.
This is terrific news for many people that have taken out reverse mortgages in the past while they had a spouse who was under the age of 62. Thankfully FHA has seen the light on this issue and taken the necessary action to correct the problem. It is important for any non-borrowing spouse to remember that you have to ask for this deferment! Be sure to communicate closely with your lender if you may be facing this situation.
These materials are not from HUD or FHA and were not approved by HUD or a government agency.