Where does the HECM Non-Borrowing Spouse Rule Stand Today?
The Department of Housing and Urban Development (HUD) continues to look for ways to deal with Home Equity Conversion Mortgages (HECMs) mortgagees and servicers vis-à-vis non-borrowing spouses.
In an August 24, 2015, letter to the National Reverse Mortgage Lenders Association (NRMLA), HUD followed up on their January 9, 2015 letter by continuing to reject industry requests for a more precise definition of a Non-Borrowing Spouse vis a vis Reverse Mortgages. NRMLA had also asked for an explanation of the non-borrowing spouse’s “legal right” regarding his/her right to remain in the mortgaged property following the death of the spouse. Lenders have been asking HUD for more information for months as they try to determine if, when and how to grant Non-Borrowing Spouses a deadline extension that will allow them to stay in the home.
Since the early days of the HECM program, HUD has been interpreting the regulations strictly. Their interpretations indicated that, upon the death of the last surviving Reverse Mortgage borrower, the lender would be able to call the debt due. This would be indicated even when the borrower was survived by a Non-Borrowing Spouse. If necessary, foreclosure proceeding would be initiated.
However, the U.S. District Court for the District of Columbia determined that interpreting the rule in this was was inconsistent with the statute that authorized the HECM program. In 2013 and again in 2014 the court ordered HUD to develop a plan which would, allow Non-Borrowing Spouses to continue to live in the mortgaged property when their borrowing spouses died.
HUD’s first response was published in January 2015. It established the Mortgagee Optional Election Assignment (MOE Assignment). Under this clause, HECM servicers and mortgagees would be able to assign the loan to HUD. The conditions that the non-borrowing spouse was obligated to meet included lack of any other HECM default and the ability to obtain “good, marketable title to the property or a legal right. The non-borrowing spouse was expected to produce these within 90 days after the borrower’s death – a hardship for many grieving widows and widowers. In addition, in order to continue to live in the home, the non-borrowing spouse was obligated to make a one-time “Principal Limit” payment, calculated on the basis of the difference in age between the borrower and the Non-Borrowing Spouse. This could, in some cases, involve payments of tens of thousands of dollars, and senior advocates objected that it was an effective barrier for many Non-Borrowing Spouses who didn’t have the cash to take advantage of the MOE Assignment and remain in the mortgaged property.
In the face of threatened court legislation, HUD rescinded the MOE Assignment option on April 30, 2015 and, on June 12, 2015, redesigned the rule so that Principal Limit payment was eliminated. As of today, non-borrowing spouses are required to show, within 90 days of the borrowing spouse’s death, documents that they have “good, marketable title to the property or a legal right to remain in the property for life.” These documents may include a court order or executed lease but other options exist as well, and, as of now, HUD has refused to detail alternate ways in which the non-borrowing spouse would be able to demonstrate — within 90 days after the borrower’s death – their legal right to continue to live in the house.
In addition, HUD has not been helping in providing information to lenders that would give them guidelines to grant Non-Borrowing Spouses an extension to this deadline (for example, in a case in which the borrower’s probate proceedings are contested or are taking longer than 90 days.)
At this point HECM lenders are making the judgment calls about whether a Non-Borrowing Spouse can remain in the mortgaged property. These calls are based on the nuances of each state’s real property law. Legal experts say that such individual calls will lead to inconsistent outcomes based on where the property is located and who is servicing the loan. Senior advocates are concerned that the HUD’s approach may prevent a Non-Borrowing Spouse from remaining in a mortgaged property for illogical reasons – due to court delays or incomplete paperwork.
If HUD is interested in following the court’s directive to create regulations that adhere to the spirit of the HECM loan, they must work with the lenders.