You may know the term non-borrowing spouse (NBS), which is the spouse of a reverse mortgage borrower who is not a borrower themselves. You might even be aware that an NBS may be “eligible” or “ineligible” for a deferral period following the death or incapacity of the borrowing spouse. However, not much is taught about the rights and responsibilities of the ESNBS — a special designation only applicable to surviving spouses where the reverse mortgage was originated prior to August 4, 2014.
A distraught caller recently reached out a close friend of mine, Kevin Neufeld, an experienced reverse mortgage professional. It was clear the gentleman didn’t qualify for a mortgage. Not only was there no equity left, but his recently deceased wife was the sole borrower on a reverse mortgaged home. Kevin recognized that the caller was in distress after the loss of his wife and asked me to look at the specifics of this case as well as any possible non-borrowing spouse protection.
An attorney had already advised the caller that he was going to lose the home. Faced with being homeless after the loss of his wife, it’s understandable why he was having trouble eating and sleeping.
In all fairness, the attorney’s instincts were reasonable. At the time the couple applied for the reverse mortgage, the gentleman’s age didn’t qualify him as a borrower. Furthermore, the reverse mortgage was obtained at the beginning of the housing meltdown, and they quickly lost any remaining equity as home prices declined.
So, can this non-borrower stay in the home after a reverse mortgage matures with no remaining equity?
SPOILER ALERT: He can, but consider the following circumstances stacked against him:
- He was not a borrower on the loan,
- He was not on title,
- There was no equity left, and
- He was not named as a non-borrowing spouse (NBS) in the loan documents
Most people would agree with the attorney and are unaware that non-borrowing spouses may qualify for a deferral of the due and payable status of the loan after the death or incapacity of the last borrower. Even fewer are aware of the rare “Eligible Surviving Non-Borrowing Spouse” designation, what I’ve chosen to abbreviate, ESNBS.
What do HUD guidelines say?
HUD regulatory changes in 2015 (expanded in 2021), created the ESNBS designation as a protection for widows and widowers in distress. This safeguard protects certain spouses where the loan originated prior to the Non-Borrowing Spouse reforms of 2014. The limited protection was expanded to include cases where the loan was assigned to HUD for servicing prior to the death of the last borrower.
According to ML 2015-15:
“When a HECM, assigned a case number before August 4, 2014, reaches 98% of the maximum claim amount prior to the death of the last surviving borrower and the mortgagee exercises its option to assign the HECM to the Secretary, the mortgagee must notify the borrower that if the borrower is married to a non-borrowing spouse, the nonborrowing spouse may be eligible for a Deferral Period provided that the non-borrowing spouse qualifies as an Eligible Surviving Non-Borrowing Spouse and all of the conditions and requirements for a Deferral Period are met and continue to be met.”
Does this ESNBS qualify for a deferral?
To determine if he qualifies as an ESNBS and is eligible for a deferral period, I asked four questions:
- Was the loan originated prior to 8/4/2014? YES
- Was he married to the borrower prior to loan origination and remained married?* YES
- Has he resided in the property for the duration of the loan? YES
- Was the loan assigned to HUD?** YES
If the loan had not been assigned to HUD, the lender would have the option, but not the obligation, to assign the loan to HUD through a process known as a Mortgagee Optional Election (MOE) assignment. But answering “YES” to all four questions should allow this gentleman to automatically qualify for a deferral until another maturity event occurs.
Conclusion
The only obstacle left for our distraught widower was to get the servicing contractor to recognize him as a qualified ESNBS. As expected, reaching a servicing representative proved difficult. After days of trying, we were pleased to hear that a HUD representative reached out to the caller directly to discuss the case.
While this is a scary scenario for the surviving spouse, this reverse mortgage loan accomplished exactly what it was meant to do. It eliminated their required monthly principal and interest payment and allowed them to live out their retirement years with increased cash flow as a result.
Today, I received confirmation that HUD will recognize his status as an ESNBS after they receive his disclosures and supporting documents. I’m hoping this brings him peace of mind and that his experience can create awareness of ESNBS protections.
Note: Not all non-borrowing spouses will qualify for a deferral period following the death or incapacity of the last borrower. Key non-borrowing spouse guidelines can be found in the following Mortgagee Letters: ML 2015-02, ML 2015-15, ML 2021-11.
*Note: In these cases, HUD makes exceptions for those who were not married at origination because of gender but subsequently married prior to the death of the last borrower.
**Note: Question #4 is important because previous assignment doesn’t leave the lender an option to assign the loan to HUD.
This column does not necessarily reflect the opinion of Reverse Mortgage Daily and its owners.
To contact the author of this story: Dan Hultquist at UnderstandingReverse.com
To contact the editor responsible for this story: Chris Clow at [email protected]
