HECM protects Non-borrowing Spouses I

 

 

Beginning today, HECM protects non-borrowing spouses (NBS), and the main reverse mortgage product in the US is stronger for it.

If you are a non-borrowing spouse, the one who did not sign the loan papers, and if your status was disclosed to the lender (and certified) at loan origination, you are protected from foreclosure and displacement if your borrowing spouse dies.

It is the first time non-borrowing spouses are getting this vital congressionally bestowed protection in the program’s 25-year history. Why did it take 25 years if Congress granted it more than 25 years ago in HECM’s enabling law? What does this protection mean for borrowers, non-borrowing spouses, lenders, HUD, and the industry? This series is an attempt to answer these questions.

Now, if the U S Congress conferred this protection to non-borrowing spouses when the HECM law was enacted in 1988, why did it take more than 25 years for it to be realized in the program?

The short answer is flawed implementing regulations decreed by the U S Department of Housing and Urban Development (HUD), the program’s insurer and administrator. But a longer answer is needed for better understanding and for lessons in the consequences of bad regulations.

In Section 255 (J) of HECM law, Safeguard to prevent displacement of homeowner, Congress says:

The Secretary may not insure a home equity conversion mortgage under this section unless such mortgage provides that the homeowner’s obligation to satisfy the loan obligation is deferred until the homeowner’s death, the sale of the home, or the occurrence of other events specified in regulations of the Secretary. For purposes of this subsection, the term ”homeowner” includes the spouse of a homeowner.

We highlighted the last sentence of the section because HUD’s regulations defined a “homeowner” in a language which excluded non-borrowing spouses from protection from displacement. And it did so for good reasons and with good intentions.

In the next post, we  look at why HUD’s interpretation of “homeowner” barred non-borrowing spouses and set the stage for the problems that the new regulations which went into effect today were designed to solve.  At this writing, a part of the problem (involving existing non-borrowing spouses who face and who expect foreclosure and displacement) remains unsolved. But there is progress.

 

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