A non-borrowing spouse (NBS) is married to a HECM reverse mortgage borrower, but is not a borrower themselves. Non-borrowing spouses are not on the HECM loan agreement, but they “inherit” important protections upon the passing of the other spouse.
There are several reasons why an individual may be a non-borrowing spouse, but the most common is age. The minimum qualifying age for a HECM reverse mortgage is 62. If one spouse is over 62 but the other is not, the younger individual is considered a non-borrowing spouse.
What is a HECM reverse mortgage?
HECM (which is often pronounced heck-um by industry insiders) stands for home equity conversion mortgage, which is the most common reverse mortgage product in the United States. If somebody you know recently got a reverse mortgage, it’s likely they got a HECM.
The HECM program was created and signed into law by President Ronald Reagan as part of the Housing and Community Development Act of 1987. Today, the HECM is overseen and regulated by the Federal Housing Administration (FHA) under the authority of the Department of Housing and Urban Development (HUD). Over 50,000 HECMs are written every year in America and the number is set to grow significantly in the future.
Important protections for the non borrowing spouse
The Department of Housing and Urban Development (HUD) made important changes to the HECM in April 2014 to protect non-borrowing spouses. Prior to the change, only individuals over 62 could be on the reverse mortgage loan agreement. This resulted in a potential pitfall for spouses younger than 62 when the older spouse passed away. The death of the older spouse triggered a maturity event, which makes the HECM balance due and payable in full. The younger spouse (who was not on the loan) had to either pay off or refinance the loan balance or give up the home.
Fortunately, HUD resolved the issue by creating new protections for non-borrowing spouses. Today, non-borrowing spouses can remain living in the home after the older spouse passes away without having to repay the loan balance. This is called a deferral period, and it remains in effect for as long as the non-borrowing spouse fulfills their program obligations. The most common program obligations are living in the home and paying the property taxes and homeowner’s insurance.
In 2021, deferral period eligibility was expanded to include non-borrowing spouses married to individuals who have lived in a health care facility for at least the last 12 consecutive months.
Also in 2021, HUD removed the requirement for non-borrowing spouses to establish marketable title or demonstrate their legal right to remain in the home following the death of the older spouse. This change makes it easier for non-borrowing spouses to establish their eligibility for the deferral period.
Though non-borrowing spouses receive the protections detailed here, they do not receive and remaining funds in the HECM. Any remaining term/tenure payments are discontinued and/or any available line of credit is closed out when the older spouse passes away.