Congress established the Home Equity Conversion Mortgage (HECM) program to be administered by the Department of Housing and Urban Development (HUD) in 1987. Since then, HUD has continued to update the program to better fit the needs of borrowers and to ensure the viability of the HECM program. The most significant recent change to the program was enacted on April 25, 2014 when HUD announced that HECM loan documents must contain a provision deferring the “due and payable” status of the loan until the death of the last surviving, non-borrowing spouse. Prior to this provision, non-borrowing spouses had to either sell or refinance the home to pay off the HECM loan. This left non-borrowing spouses who were not able to refinance with only one option, selling the home.1
New loans originated on or after August 4, 2014 will allow non-borrowing spouses, including common law spouses if recognized by state law, to continue living in the home after their spouse passes away. They will not be required to refinance or sell the property. However, there are some requirements that must be met to satisfy the provision. Some of these requirements include the following: the spouse will have to have been the spouse of the HECM borrower at the time of the loan closing, and will have to have remained their spouse for the duration of the borrowing spouse’s lifetime. In addition, the spouse must have been disclosed at origination and have occupied, and continue to occupy, the home for the life of the HECM loan to be eligible for the provision.1
Additionally, here are some actions that must be taken for the non-borrowing spouse to take advantage of this provision. According to a recent article from the Minuteman News Center, “There will be very specific, clearly defined actions that must be taken upon the death of the last surviving HECM mortgagor to ensure that the mortgage will remain in good standing. However, when the Non-Borrowing spouse accomplishes these actions, they will be able to remain in their home and continue to receive the benefits of the HECM reverse mortgage.”1 It’s important to note that the new provision will not affect current HECM loan borrowers.
For more information about Home Equity Conversion Mortgage loans, call a reverse mortgage advisor at 866.751.6105.