Reverse mortgage rules are changing ,but will they help or hinder non-borrowing spouses?

The old rules for Home Equity Conversion Mortgages (HECMs), which are backed by the government and make up the vast majority of reverse mortgage, were clearly a problem. HECMs (pronounced “heck ‘ums”) are available to those age 62 and above. However, the amount that can be borrowed is determined in part by the age of the youngest borrower. If one spouse is considerably younger than the other, the amount available is much lower, and if the younger spouse is under 62, he or she is ineligible for the loan. This led many couples to remove the younger spouse from the home’s title and let the older spouse take out the reverse mortgage.

Homeless Widows and Widowers

However, if the spouse is not on the loan as a co-borrower, this created other serious problems. If the older borrower died , the surviving spouse — known as a non-borrowing spouse or NBS — would either have to pay off the reverse loan or move out of the house. This prompted AARP to file a lawsuit to prevent the eviction of spouses, and eventually caused the Office of Housing and Urban Development — HUD — to revisit its HECM policies.

New Rules: No More Evictions

The new rules allow widowed spouses to stay in their homes. However, the new rules do not apply to previously-funded reverse mortgages. Another problem is that the new rules do not apply in situations where the borrower marries after getting a reverse mortgage — the new spouse is not protected. The new rules have also resulted in the reduction of reverse mortgage payouts, negating the advantage of removing younger spouses from the home’s title.

The questions raised by reverse mortgages mean that borrowers must shop for the best reverse mortgage rates and terms and they must also get professional help to deal with such issues as wills, taxes and estates. For details speak with lenders as well as fee-only financial planners, elder-law attorneys and tax professionals.

Petter G. Miller

Petter G. Miller