What happens when you take a reverse mortgage, but your spouse does not?

Non-borrowing spouses have some protections, but there are still risks

To qualify for a reverse mortgage, you have to be at least 62 years old. But if you’re old enough and your spouse is not, you can still take the loan by having your partner file as a “non-borrowing spouse.”

If you have a non-borrowing spouse listed in your loan file, you may qualify for less money, as the loan amount on a reverse mortgage is determined by the youngest age of the borrower. But, your spouse will be able to remain in the home should you pass away while the loan is active. Still, there are risks associated when you agree to this arrangement.

Issues with non-borrowing spouses have been a sore spot for the HECM program over the years, leading to rough headlines calling out the program for kicking seniors out of their homes after their spouse passed away.

The Department of Housing and Urban Development has taken steps to curtail the problem, putting measures in place to ensure non-borrowing spouses are protected.

In 2014, it released guidelines allowing “qualified” non-borrowing spouses to remain in the home after the borrower passed, provided they were married at the time of application and at the time of death, and that they keep up with the obligations of the loan. In 2015, if further clarified eligible versus non-eligible non-borrowing spouses.

In 2017, it made additional changes enabling non-borrowing spouses to remain on title, making it easier for them to prove their right to remain in the home upon the death of their spouse.

But while HUD’s changes have come a long way to increase protections, challenges remain.

Non-borrowing spouses are not protected if the borrower moves to a nursing home or care facility for more than 12 months. In this case, the loan would become due and payable.

Dan Hultquist, vice president of education and organizational development at Live Well Financial, said this is a primary concern that must be considered before obtaining a reverse.

“That is a maturity event that offers no protection for the NBS. If this is a concern, then they need to plan for in-home care or alternate housing for the NBS,” Hultquist said. “My advice would be to discuss future housing plans with the borrower, the NBS and their trusted advisor.”

Hultquist is the author of Understanding Reverse, a comprehensive guide to reverse mortgages, and his blog features an article detailing NBS guidelines.

He said that while NBS rights have improved dramatically, confusion persists, and it remains a tough element for originators to navigate.

“One reason for the confusion is that the lazy answer to the question is, ‘Yes, non-borrowing spouses are now protected.’ But, of course, we can’t say that definitively.”

Hultquist said the fully compliant explanation is much more cumbersome.

“To explain it right, you’d have to say something like the following:

A non-borrowing spouse who occupies the home and is identified at application, with a case number assigned on or after, August 4, 2014, who continues to occupy the home for the duration of the loan, may have the ability to remain in the home and defer the ‘due and payable’ status of the loan following the death of the last borrower, so long as they timely show the legal right to remain in the home, and so long as the loan does not become due for any other reason.

“Phew!” he said. “And it’s likely I still missed something.”

When handling cases with a non-borrowing spouse on file, Hultquist said originators need to proceed with greater care.

The moment a non-borrowing spouse is identified, he suggested originators discuss the following with their clients:

  1. What causes the loan to mature
  2. What maturity events offer no protection
  3. What must be done after the death of the borrower
  4. What arrangements can be made to protect an NBS in the event that the borrower must leave the home for mental or physical incapacity (like a nursing home)

“That last point, at minimum, should also be discussed with an estate planner, insurance agent or a financial planner,” he said. “It really highlights the need for originators to work hand in hand with other financial services professionals to protect the client.”

3d rendering of a row of luxury townhouses along a street

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