Many times there is a significant difference in what an older spouse and a younger spouse will qualify for on a reverse mortgage; the older a person is, the more money they qualify for on a Reverse Mortgage. What do you do if the older spouse has enough to cover paying off the mortgage but the younger spouse does not? What do you do if you needed a Reverse Mortgage and the younger spouse was under 62 years old? These were some tough questions that many senior homeowners have had to face in the past. Some decided to remove the younger borrower off of title in order to get a HECM Reverse Mortgage; in some situations, they were going to lose the home anyway, so this was done as a last resort.
Removing the younger spouse from title means they lose the protection and guarantee a Reverse Mortgage would have given them, namely, to live in the home the rest of their lives, along with their spouse. There have been recent changes that allow a borrower younger than 62 to receive protections from a Reverse Mortgage as long as they are married to a person 62 and older, but the FHA had done nothing to address the homeowners that were married and came off title to get this FHA insured product.
On January 29th 2015 the FHA announced that it will now allow lenders of FHA HECM products the option of delaying foreclosure of non-borrowing spouses (NBS). Let me clarify, this is an option, not a requirement for lenders. For those with case #’s assigned before August 4th 2014, “FHA’s new guidance will allow reverse mortgage lenders to assign ‘eligible’ HECMs to HUD upon the death of the last surviving borrowing spouse, thereby allowing eligible surviving spouses the opportunity to remain in the home despite their non-borrowing status,” FHA stated in an announcement Thursday on the release of Mortgagee Letter 2015-03. This assigning of the Non-Borrowing Spouse to HUD, is called Mortgage option Election, or MOE.
Here are some conditions to be ‘eligible; for NBS protections:
1. NBS had to be legally married at time HECM loan was closed
2. Currently lives at HECM property as primary residence
3. Can obtain marketable title, or legal right to property in 90 days of last HECM borrower passing away.
The Lender has 30 days to determine if one is ‘eligible’ for MOE after becoming aware of the death of the last person on the Reverse Mortgage. In order for the lender to choose to elect MOE they have a few qualifications they have to look into:
1. determine if the surviving spouse is “eligible”
2. determine if the current unpaid principal balance ( or total owed) is less than or equal to the max claim (or original appraisal amount or HECM Limit, whichever was lower) at the close of the HECM loan.
3. if the surviving spouse was old enough but elected not to be on the RM, the current loan balance cannot be higher than what the original principal limit would have been for surviving spouse at close of HECM loan.
If the surviving spouse meets all of these conditions, it gives the lender a choice to modify their Mortgage Insurance contract and assign an eligible NBS’s HECM to HUD in lieu of foreclosure. Again, this is not something the lender is required to do, but any non-borrowing spouses that fit the criteria can petition the lender to make this change which would allow them to live in the home the rest of their life without any mortgage payment. This is one more change to the HECM reverse mortgage that can do so much good. This change may truly save the homes of many widows for the rest of their lives! If you know of anyone in this situation, please pass this article along so that we can get the word out to anyone that this information may help.