Reverse Mortgages and Non-Borrowing Spouses

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The Department of Housing and Urban Development (HUD) decided to make changes to their non-borrowing spouse rules, effective for loans written on or after August 4th, 2014. There are several active lawsuits against HUD as a result of their old non-borrowing spouse rules, all due to the surviving spouse being told they must repay the loan or face foreclosure. There was always too much risk to the non-borrowing spouse under the old rules, so these changes are welcomed by everyone that follows the industry.  

What’s Required Of The Non-Borrowing Spouse Now?

Spouse signs reverse mortgage documentsThe main change is that the non-borrowing spouse can remain in the property after the borrowing spouse has passed away, assuming they meet these requirements:

  • Has been the spouse of the borrower at the time of loan closing and has remained the spouse of the borrower for the duration of the borrower’s lifetime.
  • Has had his/her information disclosed to the lender before the loan’s closing by the borrower.
  • Has occupied, and continues to occupy, the property as his/her primary residence.
  • Has established legal ownership of the property within 90 days of the death of the borrower.
  • Has continued to meet the other obligations required of the borrower in regards to the reverse mortgage (paying taxes & insurance, maintaining the property, etc).
  • Has ensured that the reverse mortgage does not become eligible to be called due and payable for any other reason.

What Happens To The Leftover Funds?

Now that the risk to the non-borrowing spouse is greatly reduced, it’s important to point out that a reverse mortgage is not an assumable loan. When the borrower passes away, any remaining funds are immediately frozen. That means any monthly payments that were being made will cease and the line of credit will be closed out. The loan will continue to accrue interest and mortgage insurance until the loan is satisfied (paid off).

Reverse mortgages can be refinanced, so it would be worth looking into if there has been a significant increase in home value or some of the available proceeds were unused by the borrower.

Is The Non-Borrowing Spouse Required To Participate?

With the old rules, there used to be instances where a borrower could move forward with a reverse mortgage without their non-borrowing spouse being involved in the process. One example is when one spouse lives in assisted living, has Alzheimer’s or dementia, and will not be returning to the property. Under the new rules, if the borrowing spouse doesn’t have a power of attorney, and doesn’t want to get court appointed guardianship/conservatorship, he/she will be unable to move forward.

The non-borrowing spouse will be required to partake in the counseling (provided by a HUD-approved agency), sign a few application documents, and a few closing documents.

The Non-Borrowing Spouse’s Age Affects the Borrower’s Loan Amount

Under the old rules, the non-borrowing spouse wasn’t on the loan, so his/her age wasn’t used in the loan calculation. Now that the non-borrowing spouse can live in the property indefinitely, the youngest age is used. The new table went into effect on August 4, 2014.

The age of the non-borrowing spouses are listed below. The corresponding numbers can be used to calculate the gross loan amount, before closing costs, that can be borrowed against the home. There is no lower limit on home value, but the upper limit is $625,500. For example, on a loan with a non-borrowing spouse that is 58 years old, a borrower can receive $50,000 on a $100,000 home ($100,000 * .500).

 Loan Amount Table (using an expected interest rate of 5.06% or less)

Age  Loan to Value Percentage
18-19 .317
20-24 .326
25-29 .350
30-34 .373
35-39 .396
40-44 .420
45-49 .443
50-54 .460
55 .484
56 .489
57 .495
58 .500
59 .506
60 .511
61 .517

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