Reverse Mortgage Law Update: Update to Non-Borrowing Spouse Rules

A Mortgagee Letter is a notice issued by the Department of Housing and Urban Development (HUD) to inform lenders (and borrowers) of changes in Federal Housing Administration (FHA) procedures, rules, and policies.

The official name for what is colloquially known as a “Reverse Mortgage” is a “Home Equity Conversion Mortgage”.

The “Deferral Period” is the period of time following the death of the last surviving Mortgagor during which the due and payable status of a HECM is further deferred based on the continued satisfaction of the requirements for a Non-Borrowing Spouse under FHA requirements.

This August, a Mortgagee Letter was issued regarding a change in the rules that protects a Non-Borrowing Spouse (NBS). For those borrowers with case number assignments on or after August 4, 2014, NBS will be able to remain in their homes, provided they are married to the borrower at the time of closing and their spousal status is disclosed at that time via a certified letter, and that they meet FHA residency requirements. The HECM loan will not be due and payable until the death of the last-surviving of the Non-Borrowing Spouse (or until another listed event occurs).

Primary residency (such that will allow the NBS to remain in the home) is defined as the property in which the borrower (and NBS) spends the majority of the calendar year. After the Borrower passes, the Surviving NBS may remain in the home if they:

1. Establish legal ownership or other legal right to remain within 90 days of the death of the Borrower
2. Unsure all other obligations of the predeceasing Borrower contained in the loan documents, i.e, payment of taxes and insurance
3. Does not allow the HECM to become due and payable for any other reason.

As long as the NBS meets these requirements AND continues to reside in the property, the proceeds of the loan will not be disbursed to the NBS, but will continue to accrue interest throughout the Deferral Period.

These changes and policies DO NOT APPLY to loans with case numbers issued BEFORE August 4, 2014.