The Federal Housing Administration (FHA) Office of Single Family Housing has released new consumer resources this month dedicated to offering information for eligible non-borrowing spouses (NBS) in reverse mortgage transactions, RMD has learned.
These new resources, made available shortly after the release of new rules expanding NBS protections, offer key information for spouses who have endured either the relocation of a spouse to a medical or nursing facility, or the death of a spouse who is listed as the primary borrower in a Home Equity Conversion Mortgage (HECM) loan.
NBS deferral provisions
In the more detailed of the two resources released this month on the Department of Housing and Urban Development (HUD) website, FHA provides details on the provisions of a HECM loan as they relate to the death or incapacity of a borrower, offering an overview of “the impacts on and rights of a non-borrowing spouse, the heirs or estate,” the document says.
This includes FHA’s definition of a “surviving non-borrowing spouse,” which the agency describes as “the spouse of a deceased HECM borrower, who was not named as a borrower in the original loan application and legal documents.”
As typically a HECM becomes due and payable upon either the death of the borrower or the elapsed 12-month period after the borrower has vacated the home, FHA details that under normal circumstances the NBS cannot withdraw unused funds from the remaining loan balance even as mortgage insurance premiums and service fees will continue to accrue on the property. This is where special NBS protections can come into play.
“Special deferral provisions, which vary based on the date of Case Number Assignment for the HECM, may be available for the non-borrowing spouse, permitting him/her to remain in the home,” the document reads.
FHA then plainly states the circumstances under which an NBS may qualify for one of the deferral provisions, as enacted by Mortgagee Letter 2015-02. At the time of application, the lender must identify any current NBS and make a determination if the spouse in question qualifies for a deferral period.
“This is a factual determination and cannot be changed or waived by any Election,” FHA says. “An eligible non-borrowing spouse may not elect to be ineligible. Similarly, a non-borrowing spouse who is ineligible at application because he or she does not satisfy the qualifying requirements may not elect to be eligible.”
The document also details the scenarios by which a NBS can become ineligible, at which point that ineligible status “cannot be cured,” FHA states. “Once a non-borrowing spouse is determined to be ineligible, he or she cannot later become eligible for a deferral period,” the document says.
Information for primary borrowers with non-borrowing spouses
FHA’s second new document is designed to serve as guidance for the spouse named on the loan, and to give that person information on what will happen to any non-borrowing spouse should the primary borrower either pass away or become incapacitated and be moved to a specialized care facility of some kind.
“In the case of your death or failure to occupy the home for 12 consecutive months (including a stay in a medical or nursing facility), your reverse mortgage may become due and payable,” the second document reads. “If your spouse was not on the original application, he/she will be unable to withdraw additional funds and will be required to repay the amount borrowed, which might result in foreclosure.”
After offering this information, FHA then encourages such borrowers to be fully aware of the options available to them and their affected spouse, the loan requirements that must still be met, and additional counseling resources approved by the Department of Housing and Urban Development (HUD).