Servicers Give Updates on Non-borrowing Spouses

As complex servicing issues regarding non-borrowing spouses continue to challenge reverse mortgage originators, servicing experts offered their guidance on updates to Home Equity Conversion Mortgage servicing at the National Reverse Mortgage Lenders Association conference last month.

As many loan originators continue to be a main source of loan-related support long after the reverse mortgage is originated, Gail Balettie, senior vice president at Celink, said it is important for loan originators to be familiar with all of the updates.

“We all understand that borrowers are going to call you first. You were the ones who got them the loan, you sat at the kitchen table with them and in a lot of cases you remained friends with them,” she said.

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One of the main sources of servicing confusion surrounds non-borrowing spouses and how to ensure they can remain in the home after their borrowing spouse passes away. Thanks to protections HUD put in place for loans originated after August 4, 2014, HECMs are safer for these non-borrowing spouses — but they must meet all eligibility requirements.

“It’s kind of like you’ve qualified for the Olympics, but you still have to win the race,” Leslie Flynn, senior vice president of Reverse Mortgage Solutions, Inc. said.

Among other items, the requirements include providing a death certificate and agreeing to continue paying taxes and insurance. Flynn especially emphasized the requirement that states the non borrowing spouse has 90 days to obtain marketable title or legal right to the property — emphasizing the importance of the timeline.

“Let’s say the non-borrowing spouse came off title or she is on the title but in that state to perfect your legal right, you must probate,” she said. “This step is what catches most people by surprise. They think because they are in the document they are clear, and they are not. They still need to prove they inherited that property or in some way have a lifetime estate to remain on that property.”

And 90 days is a hard and fast rule.

“If you are advising your new non-borrowing spouses you need to remind them that time is of the essence and it’s a big deal — because lots of people think they are totally safe because they originated after August 4, 2014,” she said.

For loans originated before August 4, 2014 — which Flynn said is the preponderance of cases — no provision was in place for these spouses. So HUD provided the opportunity for relief in the form of a Mortgagee Optional Election (MOE). Interested non-borrowing spouses must meet their own set of requirements and submit a packet of required information to HUD. If they are approved, they step into the place of the borrower upon the borrower’s death.

Required information for the MOE includes social security and death certificate, and they also have the same strict 90 days to obtain marketable title or the legal right to the property.

‘“For those of who never dealt with a non-borrowing spouse that has been told they missed the 90-day requirement and as a result you’re going to have to foreclose on the home because the package has been denied by HUD, it is a very, very sad message and it’s not always received without some form of litigation on the other side,” Flynn said.

The servicers on the panel said borrowers could preemptively put the non-borrowing spouse on the title ahead of time to have this part of the timeline is completed.

Servicers said there are a few more important non-borrowing spouse details to remember:
-The youngest borrower is already considered in the the calculation of the PLF factor so additional funds are not a possibility
-A non-borrowing spouse can only stay in the house if the borrower dies — not for other circumstances, such as the borrower moving out to go to a care facility for more than a year.
-Once the borrower dies, remaining funds or LESAs cannot be accessed by the non-borrowing spouse. “Any LESAs that were made are not available,” Flynn said.

Written by Maggie Callahan

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  • Can someone explain to me why, if all the calculations of what the couple is going to get are based on the younger borrower’s age, and, let’s say that younger borrower is the NBS, why do the benefits stop when the borrower dies? What am I missing?

    • First, the calculation is actually based on the age of youngest mortgagor, not borrower. Second, a NBS cannot be a borrower.

      As to why do benefits stop, your reasoning is very logical but this provision does not tie into the law itself 12 USC 1715z-20(j). By ignoring the law, why shouldn’t the benefits be based on the youngest mortgagor’s age but stop the earlier of termination or the death of the borrowing spouse?

      I get your points but this benefit is a “fake” benefit created by HUD as a replacement to the actual rule at 12 USC 1715z-20(j).

  • “Thanks to protections HUD put in place for loans originated after August 4, 2014, HECMs are safer for these non-borrowing spouses — but they must meet all eligibility requirements.”

    This is utter nonsense. The loan does not have to originate after 8/4/2014 but must have a HECM with a case number assigned on or after 8/4/2014 (which means AFTER 8/3/2014) per Mortgagee Letter 2014-07 as stated in the following from the effective date section of that Mortgagee Letter: “The requirements contained in this Mortgagee Letter will be effective for all Case Numbers issued on or after August 4, 2014.”

    Per Google to originate a mortgage means the following: “Origination generally includes all the steps from taking a loan application up to disbursal of funds (or declining the application).” Where used in Mortgagee 2014-07, the word originate (and its derivations) is found, its meaning agrees with the definition as found in Google. Originating a HECM as described in Mortgagee Letter is when the loan closes, not at the date that the case number is assigned.

    For example, Mortgagee Letter states: “If a Repair Set-Aside was established as a condition of the HECM, which was evidenced by the execution of a Repair Rider, funds may be disbursed from the Repair Set-Aside during a Deferral Period for the sole purpose of paying the cost of those repairs that were specifically identified prior to origination as necessary to the insurance of the HECM.” There is no way the Repair Set-Aside information can be established before appraisal and appraisal can only take place AFTER case number assignment.

  • First off, I think I may be able or I should say I will attempt to answer Bill Parker’s question, at least I will give it my best Bill!

    The important thing to remember is that the NBS is not the borrower, because, they are not of age to be qualified as one.

    Only a borrower can be the one that has the full rights and benefits of a reverse mortgage. When the borrower passes away, so does all the benefits, except one!

    The one exception is continuing occupancy. If the borrower passes away and there is a qualified NBS that executed all the proper documents at closing,

    However, the NBS must still have been married to the borrower and be residing in the home when the borrower passed away.

    In addition, within 90 days of the borrowers death, the NBS must show proof of death of the borrower through supplying a death certificate, and the NBS also has to obtain marketable title or the legal right to the property!

    Bill, I don’t know if I answered your question to your satisfaction but I gave it a shot for you!

    The NBS issue is and can be a confusing one. This is why it is so important to learn and understand all the idiosyncrasy’s of it.

    It is also very important to fully understand the changes that have occurred after 2014. In addition, it is equally important to understand how seriously important the 90 time line requirements imposed on the NBS are after the borrower passes on!

    John A. Smaldone
    http://www.hanover-financial.com

    • John,

      You argue: “The important thing to remember is that the NBS is not the borrower, because, they are not of age to be qualified as one.”

      One of the biggest errors made about who is an NBS is that age is the only issue. That is entirely false. Even an 85 year old spouse could be a NBS.

      You really need to reread Mortgagee Letters 2014-07 and 2015-02 once again. For example, if one spouse resides in the home for 5 months and three weeks each year, that spouse is a NBS. If the spouse has no ownership of any kind other than as a trust successor beneficiary or heir, that spouse is a NBS.

      Where we see the problem of one spouse living outside the home less than six months and the other more than six months is where one spouse is in the transportation industry even after 62 and snowbirds where one spouse must come back home for small periods of time to take care of their business back at their other residence.

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