All eyes are on the new non-borrowing spouse ruling from HUD. There are still many questions as to what effect this will have on the industry, with some wondering if they will hurt or benefit married seniors seeking a reverse mortgage.
Remember, the new ruling applies to FHA case numbers issued on or after August 4, 2014. Also, under the mandate, non-borrowing spouses will be able to remain in their homes after the death or permanent confinement of the borrower, providing they were married at the time of the loan’s closing and a certified letter was issued disclosing their spousal status at that time.
Let us examine how the ruling will impact borrowers and their families:
* The ruling will help protect the non-borrowing spouse from eviction in the event of the death of the borrower or in the event that the borrower had to vacate the property (to a nursing home, for example).
* * The rights of the borrower’s heirs will remain mostly unchanged. The only difference is, under the new ruling, the home would not inure to the heirs until both the borrower and the non-borrowing spouse are deceased or have vacated the home.
** * One potential drawback is that when a non-borrowing spouse is present, the principal limit will be based on the age of the youngest individual. If the non-borrowing spouse is younger than the borrower and under the age of 62, this would impact the amount of money the senior could receive from the loan. Under the present principal limit factor tables, the amount of funds is based on the ages of borrowers 62 years and older.
HUD is in the process of devising and updating new principal limit factor tables to account for cases in which the non-borrowing spouse is younger than 62. With last year’s reduction in principal limit factors and implementation of the 60 percent rule for disbursements at closing, it could become impossible for some to obtain a reverse mortgage if they are required to add a non-borrowing spouse to their case file.
However, it is still unclear if the borrower will have a choice when it comes to adding the non-borrowing spouse to the case file if they are under the age of 62. The period for industry participants to send comments to HUD regarding the new ruling closed June 2. Once those comments are reviewed, a revised HUD mortgagee letter could be issued that might address such questions.
Until HUD issues a clarification on this matter, we will not know if the borrower will have a choice in including a non-borrowing spouse on the loan documents. Regardless, many seniors, especially those with substantial equity in their homes, will be able to capitalize on the new ruling and protect the interests of their spouses.
The Financial Assessment ruling, however, is an entirely different situation. HUD released a mortgagee letter with some details last fall, but delayed implementation until the department was able to issue further clarification.
HUD officials have said a new mortgagee letter should be released this summer, and that aside from some clarifications, the guidelines will not differ too much from the original mandate. Still, I say don’t count your chickens just yet; wait to make sure those eggs hatch.
I don’t mean to suggest that lenders should hold off on preparing for FA—quite the contrary. We know that a borrower’s credit, ability to pay taxes and insurance, and ability to maintain the property will be essential factors in the mandate, and lenders would be wise to take steps to ensure those factors are present now. Lenders that underwrite the loan risk need to get prepared and devise a uniformed underwriting plan to tackle FA’s requirements.
Regardless of changes we have experienced and the ones to come, I still believe we are in an exciting industry. I am confident that we will see the need and desire for the HECM product continually increase—just look at the number of seniors reaching the qualifying age! The law of averages is on our side, my friends. Those of us who recognize this and capitalize on it while learning to navigate HUD’s new guidelines will survive and thrive.