Non-Borrowing Spouses on Reverse Mortgages May Be Able to Stay in Home After Borrowing Spouse Dies

FHA Mandate Allows Non-Borrowing Spouses to Remain in Their Home

When seniors are tight on money, they often turn to a reverse mortgage to help ease their finances. In cases where only one spouse is 62 or older, lenders will often still do the reverse mortgage and the non-borrowing spouse usually has to sign the loan document acknowledging the mortgage is being taken out. What many borrowers and non-borrowers don’t realize is that this will leave the non-borrowing spouse without a place to live once their spouse who got the loan dies! In my opinion, this should NEVER have been allowed to be the case. People in distress are turning to Reverse Mortgages for help only to have one of the spouses, the younger one, set-up to become homeless should the older spouse die first. I would argue that people who sign these loans are doing so under duress because they need financial relief and the lender is telling them that the only way they can get the loan is to get it without the younger spouse since that person is too young to qualify.

The good news is that FHA appears to have realized this terrible situation and it has tried to alleviate it with a mandate they put out in 2015 which states that Non-Borrowing Spouses on Reverse Mortgage May Be Able to Stay in Home After Borrowing Spouse Dies! Mortgagee Letter 2015-15 is the document that may help keep eligible non-borrowing spouses from being foreclosed on.

According to the Reverse Mortgage Daily, this change came about from many years of litigation of non-borrowing spouse plaintiffs.

As One Reverse Mortgage summed it up, “Certain eligible non-borrowing spouses may avoid foreclosure thanks to the new guidelines released by the FHA on Friday, June 12. According to the new guidelines, as released in Mortgagee Letter 2015-15, when a borrower passes away, a lender may choose to foreclose the home or use a Mortgagee Optional Election Assignment (MOE). The MOE further defers the repayment of the reverse mortgage for the non-borrowing spouse. In other words, non-borrowing spouses may have the opportunity to stay in their homes after their loved one’s passing.”

Of course, there  are criteria that have to be met for the Mortgagee Optional Election Assignment for Home Equity Conversion Mortgages (HECMs) with an FHA Case Number assigned prior to August 4, 2014

For cases that involve an Eligible Non-Borrowing Spouse and the FHA Case Number was assigned on or after August 4, 2014, there are additional eligibility criteria.

I am not going to kid you, the process is not as simple as just filling out a form. You may have to speak with a lender or someone else to help you make sense of all the terminology in the letter and to help you compile the packet you will need to submit, but don’t let that keep you from doing what needs to be done so you can keep your home. Think of it as compiling the information you would need to get a loan for your house because that is what it is. The task may seem daunting, but just take it step by step and you will get through it and hopefully come out with the mortgage assigned to you when you get to the end of the process.

Here is a link to an article by National Mortgage Professional Magazine to tell you more about it.

Hopefully in the future, they will allow currently “too young” spouses to be part of the Reverse Mortgage from the beginning so we don’t have people in these terrible situations.

 

Robin Watson-Bird, Ph.D. is a seasoned California Real Estate Broker and REALTOR based in Livermore CA who serves most of the Greater Bay Area and parts of the Central Valley.

Seniors Can Buy Homes With a Reverse Mortgage (FHA HECM) & NOT Have to Make Any Monthly Mortgage Payments in Livermore, Danville, Pleasanton, Dublin, Tri-Valley, California and the United States!

Seniors Can Buy Homes With a Reverse Mortgage (FHA HECM) & NOT Have to Make Any Monthly Mortgage Payments in Livermore, Danville, Pleasanton, Dublin, Tri-Valley, California and the United States.

 

One of the biggest challenges for some seniors is that cannot afford or are financially stretched to the breaking point by a monthly mortgage payment in addition to their other monthly expenses. Many people have heard about the various types of reverse mortgages that seniors can get on their current homes if they currently have equity in their property, but most people have not heard about seniors being able to purchase a new property with a reverse mortgage. That program, in my opinion, is a great option for many seniors today. They can buy a new home with a reverse mortgage and never have to make a mortgage payment while they live there. When everyone on title passes away, their heirs can keep the property by refinancing/paying off the reverse mortgage loan or they can sell the property. With a reverse mortgage, the property is the security for the loan, so even if the home has no equity or is upside down at the time of the sale, the heirs do not have to pay any funds towards the shortage.

This is a great program for seniors who currently own a home that does not meet their needs or is too far away from family, etc. For these people, we can help them sell their current home and they can use the proceeds from that sale, to put down on the new home that they want to purchase with a reverse mortgage. This actually allows many seniors to move to a more expensive property if they want to without having to make a mortgage payment each month.

I have a fantastic senior couple I helped to buy their home in Concord several years ago and they are now selling it, taking the equity and will likely be using a Reverse Mortgage to purchase a new property in a more expensive town in Southern California closer to their friends and will not have to worry about a monthly mortgage payment!  With the Reverse Mortgage purchase option, they can now go out with friends, travel etc. and enjoy their golden years instead of being stuck at home because of the overbearing mortgage payment each month.

There are various types of Reverse Mortgages. This is just one. Others provide a monthly check to the senior while others work like equity lines, etc. The goal for all of them, however, is to increase the quality of life for seniors. Many of the children and heirs of seniors do not like Reverse Mortgages because it gradually takes away the equity in a property and when the seniors dies or moves from the property, there may not be enough equity to refinance the property to they can keep it and the property would need to be sold.  If you are just considering what is best for the senior, a Reverse Mortgage may be the best option for them to have the highest quality of life and be able to stay in their own home until they pass away if they want to.

Below is a brief excerpt from the HUD Website about the Reverse Mortgage Purchase program to get your started:

What is HECM for Purchase?

HECM for Purchase allows seniors, age 62 or older, to purchase a new principal residence using loan proceeds from the reverse mortgage.  

What is the purpose of the program?

The program was designed to allow seniors to purchase a new principal residence and obtain a reverse mortgage within a single transaction. The program was also designed to enable senior homeowners to relocate to other geographical areas to be closer to family members or downsize to homes that meet their physical needs, i.e., handrails, one level properties, ramps, wider doorways, etc.

What property types are eligible?

Existing one-to-four unit properties where construction has been completed and the property is habitable as evidenced by local jurisdiction issuance of certificate of occupancy or its equivalent.

What property types are ineligible?

  • Cooperative units
  • Newly constructed residences where a Certificate of Occupancy or its equivalent has not been issued by the appropriate local authority
  • Boarding houses
  • Bed and breakfast establishments
  • Existing manufactured homes built before June 15, 1976; and
  • Existing manufactured homes built after June 15, 1976 that fail to conform to the Manufactured Home Construction Safety Standards, as evidenced by affixed certification labels (e.g., data plate and HUD certification label) and/or lack a permanent foundation as required in HUD’s Permanent Foundations for Manufactured Housing Guide or homes that are installed or were occupied previously at another site or location.

Are set asides for property charges allowed (i.e., ground rent, tax, insurance, Homeowner Association fees, etc.)?

Yes. Mortgagors will continue to have the option of electing to have the lender withhold funds from their monthly payments or by charging such funds to the line of credit.

Are set asides for repairs allowed?

To be eligible for federal insurance, the property must meet FHA minimum property requirements. All repairs to correct major property deficiencies that threaten the health and safety of the homeowner and/or jeopardize the soundness and security of the property must be completed by the seller prior to closing. Appraisers must complete the appraisal report as “Subject To” the completion of these repairs.

Major Property Deficiency Examples:

  • No running water
  • Leaking roof
  • No primary heating source
  • Inadequate electrical system (including lighting)
  • Inoperable doors and windows (inhibited ingress and egress)
  • State or local code violations

You can find more information and the answers to frequently asked questions about Reverse Mortgage Purchases (FHA HECM) on the HUD Website:

http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/hecm/faqs_hecm

 

Curious about Reverse Mortgage Calculations? 

Here is a link

My Reverse Mortgage Go To Person, Steven Moline, a Reverse Mortgage Specialist I have known for many years and who has done Reverse Mortgages for my family as well as clients in the past has provided this link for NRMLA’s Reverse Mortgage Calculator:

http://rmc.ibisreverse.com/default_nrmla.aspx

He also provided the scenario below:

 For example, on a $100k property for a 66 year old borrower,  would give them approximately $58K (or 58%) for a mortgage. They would need $42k (or 42%) down. You would need to talk with Title & Escrow regarding closing costs.

 

If you would like discuss the possibility of purchasing a home with a Reverse Mortgage and/or selling your current home and purchasing a new one with a Reverse Mortgage using the equity from your current home’s sale, feel free to contact me. I would be happy to discuss this process with you. If you would like to be connected to my reverse Mortgage go to guy Steven Moline, let me know and I will be happy to connect you with him. Feel free to call me at 925-577-8692 or send me an email through this website.

Just so you know, I do not make any money from mortgages, loans, or referring people to mortgage or loan agents. I just believe in providing people with information I think is valuable that they may not know about. If I can help them with part of their home buying or selling process, that is a bonus.