Loan Modification

HECM Loans: HUD Addresses Eviction of Non-Borrowing Spouse

By Gina Pogol

Home Equity Conversion Mortgages, or HECMs, are pretty easy to get. You need to have home equity, you need to be living in your home, and you need to be at least 62 years old. But what if one spouse on the home’s title is under 62?  Or substantially younger than the older borrower, which lowers the amount that can be borrowed? Well, that can be gotten around, by taking the younger spouse off the home’s title. However, non-borrowing spouses everywhere are discovering that there can be consequences to this fix — eviction from their family home when the older spouse dies.
HUD has proposed a rule change, redefining “spouse” to ensure that a husband or wife who is not on the loan (and therefore not required to attend HECM counseling) understands the consequences when the borrower dies.

In addition, the soon to be released HECM counseling protocols will advise counselors that if a client considers removing a younger spouse from title in order to be eligible, the counselor should caution the client about possible consequences for the non-borrower spouse. The counselor should also advise a client that the younger spouse may be added to a new HECM loan when he or she has reached the age of 62 via HECM refinance procedures.

However, the non-borrowing spouse should understand that HECM refinancing is not guaranteed, and will depend on the eligibility of the spouse and the equity in the property, in addition to HECM guidelines at the time. During counseling, ALL parties must be advised that the FHA-insured HECM cannot be assumed by the non-borrower spouse upon the HECM borrower?s death or departure from the home.

While the majority of lenders require a non-borrowing spouse to fully participate in the counseling sessions, it has not been required by HUD.

Full post as published by FHA Mortgage Guide on May 03, 2010 (boomark / email).