Reverse Mortgage Changes Offer Protection for Spouses

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Non-borrowing spouses now have additional protections when their older partner takes out a reverse mortgage.

To qualify for a reverse mortgage, the borrower must be at least 62 years old. If the borrower is old enough to qualify for a reverse mortgage, but their partner is not, they can file as a “non-borrowing spouse.” In the past, there were concerns that non-borrowing spouses didn’t get adequate consideration when the borrowing spouse passed away. 

Fortunately, the Department of Housing and Urban Development (HUD) updated its guidelines to ensure non-borrowing spouses are protected. Non-borrowing spouses can now stay in their home, regardless of the balance owed, but certain qualifications must be met.

How Are Non-Borrowing Spouses Protected?

Protections enacted in 2014, allow the surviving, non-borrowing spouse to defer the “due and payable” status of the loan upon the death of the last remaining borrower. There are several conditions that the non-borrowing spouse must meet to qualify for the deferral period:

  • The loan’s case numbers must be assigned on or after August 4, 2014.
  • The non-borrowing spouse must have been legally married (as determined by state law) to the borrower at the time of loan closing and remained married until the borrower’s death.

In 2021, HUD issued new rules that allow a non-borrowing spouse to remain in the house even if the primary borrower has been living in a healthcare facility for more than 12 months.

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What Is a Mortgagee Optional Election?

For those older loans issued before August 4, 2014, the lender has the option of assigning the loan to HUD instead of foreclosing. This is called a Mortgagee Optional Election, or MOE Assignment. When the last borrower dies, the lender may assign the loan to HUD, and HUD will provide a similar deferral of the due and payable status of the loan until another maturity event occurs.

Who Qualifies as a Non-Borrowing Spouse?

HUD expanded the definition of an eligible non-borrowing spouse in 2021 to include the spouse of a Home Equity Conversion Mortgage (HECM) borrower where the HECM loan was assigned a case number before August 4, 2014, and who was:

  • Legally married and either remained married until the borrower’s death or remains married to the HECM borrower in situations where the borrower has resided in a healthcare institution for more than twelve consecutive months. Or engaged in a committed relationship with the borrower akin to marriage, but was prohibited, at the time of the HECM loan origination from legally marrying the borrower based on gender, but was legally married prior to the death of the borrower and remained married until the death of the borrower or remains married in situations where the borrower has resided in a healthcare institution for more than twelve consecutive months.
  • Has occupied, and continues to occupy, the property securing the HECM as his or her principal residence.

Recent Updates Offer More Flexibility

On September 23, 2019, HUD updated MOE assignment guidelines even further. This change offers more flexibility to more spouses. According to HUD’s press release, “FHA no longer requires, as a condition of meeting the definition of ‘Eligible Surviving Non-Borrowing Spouse,’ that the Non-Borrowing Spouse possess or demonstrate the ability to obtain good and marketable title to the property or a legal right to remain in the property for life.”

This eliminated one of the biggest hurdles for a grieving spouse. However, while some called this a win for all non-borrowing spouses, remember this change only impacts “Eligible Surviving Non-Borrowing Spouses,” which is a term that only applies to MOE Assignments for HECM loans with case numbers prior to August 4, 2014.

In any case, couples should prepare ahead of time to avoid a scramble after a spouse’s death. Also, be sure that the property taxes and homeowner insurance premiums are up-to-date. With proper planning, non-borrowing spouses can be protected thanks to the new HUD guidelines. Consult with an estate planner, insurance agent, or financial planner to ensure that protections are in place for you and your loved ones.