Non-Borrowing Spouse Update Brings New Challenges to Reverse Mortgages

While recent updates to rules regarding non-borrowing spouses of reverse mortgage borrowers may appear beneficial for consumers on the surface, they bring about several underlying challenges, suggests a recent column from Jack Guttentag, The Mortgage Professor.

The issue of the non-borrowing spouse has been a topic of debate and increasing litigation between the Department of Housing and Urban Development (HUD) and AARP, which filed a lawsuit against the federal agency in 2011 for foreclose actions taken in the event of a Home Equity Conversion Mortgage (HECM) borrower’s death.  

In response to the ongoing series of lawsuits, in April HUD devised changes to the HECM program that will protect non-borrowing spouses, allowing them to remain in their home even after their borrowing spouse has died, provided they are married to the borrower at the time of loan closing, among other requirements.

But now, as those updates approach their effective case number date of August 4, the HECM program will encounter some obstacles.

“Effective Aug. 4, more sand will be thrown in the HECM gears, thanks to a misguided lawsuit by AARP against the Department of Housing and Urban Development, and a misguided change in HECM rules by HUD in response to the lawsuit,” Guttentage writes.

The new rules carry two major costs, Guttentag notes, with one being that seniors with younger spouses are required to purchase tenure protection for them whether they need it or not. 

The second cost is more “insidious,” Guttentage suggests, as NBSs cannot draw funds under the HECM even if they have their tenure protected. 

“A borrower in anticipation of death, however, can draw the full amount of any unused credit line, including the line obtained from conversion of monthly payments, which then becomes accessible to the NBS,” he writes. “This is a horror show waiting to happen that will seriously endanger the integrity of the program.” 

Read The Mortgage Professor’s column.

Written by Jason Oliva

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