Enhanced Protections for Non-Borrowing Spouses: Understanding Recent Changes in Reverse Mortgage Laws
A reverse mortgage is a loan that allows homeowners age 62 or older to borrow against the equity in their homes and receive a lump sum, a fixed monthly payment, or a line of credit. Reverse mortgages are often used by seniors to augment their income in retirement.
Federal laws governing reverse mortgages have evolved over the years. In May, the Federal Housing Authority (FHA) issued a new rule increasing protection for non-borrowing spouses—that is, the spouses of individuals with reverse mortgages who are not named in the loan itself. Let’s take a brief look at the recent history of reverse mortgages to understand why this change is important and how it will benefit non-borrowing spouses.
In the past, if one spouse was under 62 years of age, he or she could not be named in the loan if the couple wanted to get a reverse mortgage. This had the potential for financial catastrophe. If only one spouse was on the mortgage, and that spouse passed away, the surviving spouse would have to repay the loan or be faced with eviction from the family home.
The Department of Housing and Urban Development made a change to this rule in 2014 that offered greater protection for some surviving spouses. The change stipulated that a couple with one spouse under the age of 62 could get a reverse mortgage if the underage spouse was classified as a “non-borrowing spouse.” Then, if the older spouse passed away, the non-borrowing spouse could remain in the home as long as he or she established, within 90 days, his or her “right” to do so. This right could be established in a number of ways, such as through a lease, a court order, or an ownership document.
Unfortunately, the 2014 change only applied to reverse mortgages taken out after the law became effective and it did not protect the spouses of borrowers who were forced to leave the family home due to medical problems.
The FHA’s new rule corrects these shortcomings and increases protection for the following:
- All non-borrowing spouses rather than just those whose reverse mortgages went into effect after 2014
- Non-borrowing spouses of borrowers who resided in a care facility for 12 consecutive months or more
- Spouses who were in a committed relationship with the borrower when the reverse mortgage was initiated but could not marry because of same-sex marriage prohibition… as long as the couple married before the borrower passed away
In addition, the new rule eliminates the requirement for non-borrowing spouses to show they have a title or legal right to stay in the family home.
Sadly, the new rule fails to protect spouses who weren’t married to the borrower when the reverse mortgage was initiated (with the exception, again, of same-sex couples who were unable to marry legally). Nor can the non-borrowing surviving spouse receive a reverse mortgage’s remaining balance.
We invite you to contact us at your earliest convenience to discuss your unique planning needs and goals.
