HUD Defines New Type of Reverse Mortgage Non-Borrowing Spouse

The Department of Housing and Urban Development today provided more detail on the treatment of reverse mortgage non-borrowing spouses.

The agency announced in 2014 that it would implement new protections for qualifying non-borrowing spouses, and the new guidance helps lenders define both eligible and ineligible non-borrowing spouses with respect to their ability to defer loan repayment when the borrower has passed away.

Mortgagees must identify at application any current non-borrowing spouses and determine whether they are eligible or ineligible for a deferral period once the HECM borrower passes away or is no longer residing in the property, according to changes announced by HUD in a new mortgagee letter published Friday.

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Mortgagee Letter 2014-07 defines a new type of non-borrowing spouse, termed “ineligible non-borrowing spouse,” which is to be used for a non-borrowing spouse (NBS) who does not meet the Qualifying Attributes requirements defined in ML 2014-07 for a deferral period.

“An example of an ‘ineligible non-borrowing spouse’ is someone who is on title but does not reside in the subject property, or have any plans to reside in the subject property,” says the National Reverse Mortgage Lenders Association (NRMLA) in a statement.

The principal limit will be based on the age of the youngest HECM borrower or eligible non-borrowing spouse living in the property when an ineligible NBS is identified.

Mortgagees may start complying with these non-borrowing spouse requirements for case numbers assigned on or after Jan. 12, 2015. Compliance is required by March 9.

The letter also provides new model certification language that mortgagees must use at origination and throughout HECM servicing when there is an eligible non-borrowing spouse. The certification language replaces language in Mortgagee Letter 2014-07.

In addition, the letter also clarifies non-HECM liens for the “Seasoning Requirements for Existing Non-HECM Liens” Section of Mortgagee Letter 2014-21.

Read Mortgagee Letter 2015-02 here.

Written by Cassandra Dowell

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  • It is remarkable that there are now four types of non-borrowing spouses.

    First there are those non-borrowing spouses who survive their borrowing spouses and find broad protections against displacement under 12 USC 1715z-20(j) but the HECM their spouses originated must have a case number assigned before August 4, 2014 and be active as of the date of the event that triggered potential displacement. But currently the only way non-borrowing spouses can assert their rights appears to be by litigation against HUD/FHA.

    Second are those surviving non-borrowing spouses who were married to the borrowing spouse as of related HECM closing and find narrow protection against displacement due to the death of the borrowing spouse under Mortgagee Letter 2014-07 and must have a case number assigned after August 3, 2014 but before March 9, 2015. There are several qualifications which must be met as described in Mortgagee Letter 2014-07.

    The third category is the same as the second except they must the qualifications found in Mortgagee Letter 2015-02 and the case number for the related HECM must have been assigned after March 8, 2015.

    The fourth category includes all those non-borrowing spouses who are not included in the three categories above and thus cannot be protected from displacement at termination.

    So if the eligibility of non-borrowing spouses wasn’t confusing enough, lo and behold along comes Mortgagee Letter 2015-02. This is why there is a comment period required for regulatory action rather than the unilateral nonsense and rewrites occurring with laws like the Reverse Mortgage Stabilization Act of 2013 and codified at 12 USC 1715z-20(h)(3).

    • how about requiring lenders to notify borrowers of the changes so they can prepare before the main borrower passes away. it would be nice if the lander acknowledge the existence of the co owner of the home.

      • ron44,

        Why? I agree with lender notification IF there were changes in the Non-Borrowing Spouse rules HUD is mandating about which applicable borrowers were not given adequate information and disclosures. But there is NO evidence indicating such a situation exists.

        Mortgagee Letter 2015-03 is an election to be made by mortgagees not mortgagors. Mortgagee Letter 2015-02 is now being presented to applicants with disclosures covering points which apply to the applicant. As to Mortgagee Letter 2014-07, that is now obsolete and was properly disclosed as required in order for the HECMs to which that Mortgagee Letter applied to qualify for endorsement.

        So what is it that you think is left to be done? It is extremely doubtful if a single borrower was not presented with the applicable information since 8/4/2014 when Mortgagee Letter 2014-07 first went into effect. If you have some cases where it was not done, please advise NRMLA or HUD so the situation can be corrected.

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