Q. I hear that HUD just made some important changes for borrowers of Reverse Mortgage loans to protect the borrowers’ spouses. Do you know anything about that?
A. Yes, indeed, and you heard correctly. On May 6, the Department of Housing and Urban Development (“HUD”) issued new rules to govern all Home Equity Conversion Loans (“HECM”). These added new protections for Non-Borrowing Spouses when their borrower spouse either died or moved out of the home to receive long term care outside the home. It also eliminated the burden formerly imposed upon the Non-Borrowing Spouse to establish an ownership or beneficial interest in the home within 90 days of the borrowing spouse’s death. These changes are very significant. To understand their import, here are some key Questions and Answers:
Q. What is a Non Borrowing Spouse?
A Non Borrowing Spouse (“NBS”) is a spouse who did not join on the HECM loan as a co-borrower. The typical reason was that he or she was under the threshold age of 62 at the time of the HECM loan.
Q. Under the former rule, what happened when the Borrowing Spouse died?
A. The NBS formerly had a very short window, 90 days, to establish her ownership or beneficial interest in the home, a window that was often too short to permit compliance, especially if the home of the deceased spouse went into probate. This left many NBS’s without the ability to remain in the home, even with the modest 60 day extension sometimes granted under the former rule. If she could not refinance the loan, she was either forced to sell or faced foreclosure. In either event, her right to remain in the home was in serious jeopardy. By contrast, under the new rule there is no longer any requirement that the NBS formally establish her ownership or beneficial interest in the home. She need only continue to reside in the home as her principal residence and meet other conditions of the HECM loan, e.g. pay property taxes, homeowners insurance, and HOA fees (if any).
Q. Under the former rule, what happened when the Borrowing Spouse did not die but, instead, just moved out of the home to be cared for in an Assisted Living Facility or Nursing Home?
A. Since this was not a “death”, but a move-out, there were no protections; the NBS was either forced to refinance the home (if she could), sell the home or, again, face foreclosure. None of these events were what either spouse contemplated when the Borrowing Spouse took out the original HECM loan, and was perceived as unfair in the lead up to the current rule. The new rule adjusts for this disparity in treatment, and now grants the NBS the right to remain in the home, just as if the borrowing spouse had died and without the need to establish her ownership or beneficial interest in the home in any formal way. The former 90 day window is now irrelevant.
Q. Must the spouses have been married at the time of the HECM loan?
A. Yes, and this is one shortfall of the new rule. A later marriage does not elevate the new spouse to the role of an “Eligible Non-Borrowing Spouse”. In the event of a later marriage, the only resolution is to try to refinance with a new loan, wherein both parties are co-borrowers.
Q. Under the new rule, after the death or moved out of the borrowing spouse, can the NBS continue to draw upon the available loan balance?
A. No, and again this may be another shortfall of the new rule.
We anticipate that these changes will have a positive impact upon couples faced with the death or move-out of the borrowing spouse and hope that this information helps.
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Reference: HUD Mortgagee Letter 2021-11, issued May 6, 2021;
Article in the “Reverse Mortgage Daily“.