While new reverse mortgage policy changes implemented by the Department of Housing and Urban Development this week have been well received across the industry, the new non-borrowing spouse terms are presenting a challenge for originators in Texas.
A past ruling in a Texas court of appeals case regarding loan repayment deferral, combined with the new HUD rules on Non-Borrowing Spouses, creates a possible a “Catch-22” in the state.
While the vast majority of loans are closing on schedule and under the new terms, currently there is a hold on non-borrowing spouse loans due to the interpretation of the rule in Texas. Contrary to the recent delay in Texas’s recognition of Home Equity Conversion Mortgages for Purchase, the non-borrowing spouse issue is not a constitutional one, say those who are working to resolve the issue.
“We don’t believe this is a constitutional issue,” says Scott Norman, vice president of sales for Urban Financial of America. “We believe this is an issue that we can resolve in the next month or two.”
Not having to amend the constitution in order to resolve the issue should allow the resolution in short time, Norman says. Instead, reverse mortgage documents in Texas may need to shift in order to accommodate the new non-borrowing spouse rules.
Currently, ReverseVision is offering documents for originators in Texas who are working with non-borrowing spouse cases on a lender by lender basis, using language proposed by HUD. However, it is at the lender’s risk whether they wish to proceed with origination of non-borrowing spouse loans in Texas until the issue is fully resolved.
Two potential permanent solutions include having Texas carve out reverse mortgages from their regulations, or modifying the language in certain documents used for Texas loans to accommodate their requirements that could impact reverse mortgages with non-borrowing spouse protection.
The National Reverse Mortgage Lenders Association is working with HUD in order to amend Texas loan documents for these cases, the association said in an email to members.
“As always, lenders and members should consult with their own counsel prior to originating such loans on and after August 4, 2014 in Texas where an NBS is involved,” NRMLA said.
Written by Elizabeth Ecker