FAQ from HECM and the Non-Borrowing Spouse Webinar
Eligibility and Pre-Closing Issues
Q: What is the definition of Non-Borrowing Spouse (NBS)?
A: The spouse, as determined by the law of the state in which the spouse and mortgagor reside,
or the state of celebration, of the HECM mortgagor, at the time of closing, and who is not a
mortgagor.
Q: Does this include common-law spouses?
A: Yes, if recognized as legal in the state where the borrower lives
Q: Does this include same-sex spouses?
A: Yes, if recognized as legal in the state where the borrower lives OR in the state where the
marriage took place.
Q: Does the borrower have to show a marriage license as part of the loan application?
A: HUD does not require this, but it is possible that lenders may choose to do so.
Q: What if the borrower has a spouse but does not disclose this in the loan application or
at closing?
A: The certification that the borrower has to sign explicitly states that the borrower is either
married or unmarried, and it also includes a statement about potential federal penalties for false
statements.
Q: Does it matter whether the spouse is on title or not?
A: No. If there is a spouse, whether or not they are an owner at the time of loan application,
they must be named and must complete and sign the NBS certification.
Q: If the NBS is too young or otherwise ineligible for the HECM, does s/he still have to be
removed from title prior to closing?
A: Yes, it appears that this is the case. This might change in future.
Q: Does it matter if the spouse is separated from the borrower?
A: Yes. In order to qualify for the deferral, the spouse must be living with the borrower at the
time of closing and for the remainder of the borrower’s life. However, the separated spouse
must still be declared at closing, must be counseled, and their age must be used in loan
calculations.
Q: What about spouses who marry the HECM borrower after closing?
A: They are not eligible for deferral of repayment.
Q: If there is a spouse, but s/he does not meet the criteria to be eligible for a deferral, is
the NBS age still used in the Principal Limit calculation?
A: Yes. As of now, HUD has stated that NBS age must be used, regardless of whether the NBS
will qualify. It is possible that this policy may change in the future.
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Q: How does the age of the NBS affect the loan amount?
A: The new Principal Limit Factor Tables (which specify the percentage of home value available
to borrowers at different ages and interest rates) are used for either the borrower or the NBS,
whichever is younger.
Q: If one spouse is 75 and the other is 65, and the HECM proceeds based on age 65 will
not be enough to pay off an existing mortgage, can the younger spouse be removed from
title and opt out of the deferral so that they can get more money from the HECM?
A: No, it appears that this option is no longer available, so there would be no reason to remove
the 65 year old from title. If the HECM will not provide enough funds based on the younger
spouse’s age, the couple will have to seek other options.
Q: Does the presence of the NBS affect anything else about the HECM?
A: No. All other features remain the same, including payment plans, etc.
Q: If the NBS is declared at closing, is s/he considered a borrower on the HECM loan?
A: No. The NBS only signs the NBS disclosures, not the whole loan agreement or other
paperwork. S/he is NOT a borrower.
Q: Can lenders add additional requirements, such as that the couple must have been
married for a minimum period of time in order to qualify as an NBS? (Similar to the
added “seasoning” requirements for ownership that are added by some lenders.)
A: There is nothing in this ML that seems to forbid such a practice.
Q: Once the loan has closed, what does the NBS have to do in order to remain eligible for
deferral of repayment after the borrower dies.
A: The NBS must certify annually that he/she still lives in the home and is married to the
borrower.
Q: What if the NBS is away from the home for periods of time but remains married to the
borrower?
A: The NBS must maintain the home as his/her principle residence. This does not prevent
him/her from being away for short periods, in the hospital, on vacation, etc. If the NBS were out
of the home for more than a year, this would almost certainly void his/her eligibility for deferral,
however.
Q: Under what circumstances can the NBS obtain a deferral of repayment on the HECM?
A: The ML mentions only the borrower’s death. Evidently the deferral does not apply for a
borrower who has made a permanent move out of the home, whether for health or any other
reasons.
Q: Could this result in abuses, where the borrower is kept in the home when he/she really
needs to be in a health care facility, in order to prevent the loan from coming due?
A: Yes, that is possible, as it has always been a possibility with a NBS situation.
After the Borrower Dies
Q: What does the NBS have to do when the borrower dies?
A: If not already on title, NBS must move as quickly as possible to establish legal ownership or
right to live in the property. This must be accomplished within 90 days of the borrower’s death,
according to ML 14-07.
Q: Can the NBS use a Transfer on Death deed to establish legal ownership?
A: If the state where the home is located has the option of a Transfer on Death deed, and if the
legal transfer is actually complete within 90 days, then this should work. Clients seeking to use
this method should consult an attorney to be sure that this is feasible in their state.
Q: What would be an example of “legal right to live in the property” other than
ownership?
A: The ML gives the example of an executed lease or court order. A lease might come into play
if someone other than the NBS inherits the property (e.g., the children of the borrower from a
previous marriage) and that heir is willing to rent the property to the NBS. This might also work
if the property is owned by a trust. Another possibility would be if the NBS has a life estate
interest in the property (preferably established prior to the borrower’s death).
Q: If the NBS is unable to establish legal right to live in the property within 90 days of the
borrower’s death, do they still have 12 months to sell the home and pay off the HECM?
Does the 12 month period begin after the 90 days?
A: This is not addressed in the ML, but in practice it is likely that lenders will allow an initial 3-6
month period with at least one potential 3 month extension if the NBS is in the process of selling
the home.
Q: Can the NBS still sell the house if they do establish a deferral?
A: Yes, if s/he has legal ownership of the property, s/he can sell the house and pay off the loan
at any time.
Q: What if the property is inherited by someone other than the NBS and that heir wants to
sell the house?
A: If there is no life estate for the NBS, other heirs or the estate would still have the right to sell
the home at any time. The NBS deferral only operates as long as the NBS has the right to live
in the home.
Q: What does the NBS have to do to keep the deferral in place?
A: NBS must meet all obligations specified in the loan documents, including paying taxes,
insurance, and maintenance on the property. NBS must also maintain the property as primary
residence.
Q: How will the lender know if the NBS is living in the home?
A: The NBS will receive an annual request to certify that the home is the primary residence.
Q: What if the NBS has to live in a nursing home or other healthcare institution?
A: As is true for a borrower, the NBS can be away from the home for up to 12 months for health
reasons.
Q: Can the NBS use HECM proceeds to pay taxes and insurance, or make repairs to the
property?
A: No. The NBS will not have access to any HECM proceeds after the borrower’s death. If they
anticipate needing those funds, loan advances must be obtained prior to the borrower’s death.
Q: Is interest and MIP still added to the loan during the deferral?
A: Yes, the loan balance continues to grow just as it did during the borrower’s lifetime, until the
loan is repaid.
Q: If the NBS remarries, does this affect the deferral?
A: This is not addressed in the ML, but it would appear that as long as the NBS meets all
requirements of ownership, residency, paying property charges, etc., s/he could still continue
the deferral.
Q: Once the deferral is established, how long does it last?
A: There is no time limit, as long as the NBS continues to live in the home and fulfill the
obligations under the HECM.
Q: When the NBS dies, do the heirs still have time to sell the home and pay off the HECM.
A: The ML states that the HECM becomes immediately due and payable, but in practice it is
likely that they would be given time to sell the property, just as is the case when the HECM
borrower dies and there is no NBS.
Other issues
Q: Does this ML apply to NBS where the HECM loan was originated prior to August 2014?
A: No. The deferral provisions in this ML only apply to loans whose case number was obtained
on or after August 4, 2014?
Q: Are NBS in older HECMs protected in any way?
A: This question is still in flux, based on ongoing litigation. At the present time, HUD has given
lenders the option of deferring foreclosure and/or assigning loans to HUD on loans where there
is a NBS who meets certain criteria. See FHA INFO 14-34.
Q: If a borrower had a HECM that closed prior to August 2014, can they refinance so that
their NBS would have the possibility of a deferral?
A: Yes, assuming that they were able to qualify for the refinance when the NBS’ age was taken
into account.
Counseling Issues
Q: How does this affect counseling?
A: Counselors must make efforts to determine whether there is a NBS and must advise the
borrower that the NBS has to receive counseling.
Q: If the prospective borrower and the NBS are separated, do we still counsel the NBS?
A: Yes. If they are still legally married at the time of closing, the NBS will have to be declared
and his/her age will be used in the loan calculation.
Q: What if the borrower says the lender told them that the NBS did not have to be
counseled?
A: Advise the borrower that HUD requires counseling for the NBS.
Q: What if the borrower does not disclose the existence of the NBS until the counseling
session is underway?
A: Advise the borrower that the NBS will need to receive counseling in a separate session.
Q: How do we counsel the NBS?
A: HUD stresses the importance of making sure the NBS knows the importance of establishing
legal ownership or right to remain in the property within the 90 day timeframe. Counselors
should also help the NBS to consider whether s/he will have the financial means to maintain the
home and pay taxes/insurance if the borrower dies.
Q: Should we advise the NBS to be placed back on title after closing?
A: In the case where the NBS is not going to be on title because s/he is under 62, it appears
that getting the NBS back on title after closing would be a good idea. Borrowers/NBS should
check with lenders to make sure this is permissible. If the NBS is over 62, there is no longer
any reason to remove him/her from title to increase the loan amount. If the NBS is not on title
for some other reason (e.g., other heirs), the borrower and NBS should consider other ways to
protect the NBS in the event of the borrower’s death. Counselors must refrain from giving legal
or estate planning advice and should refer clients to such professionals where appropriate.
Q: How would you counsel the borrower and NBS about whether or not to withdraw
available HECM proceeds if it seems that the borrower is about to die?
A: As a counselor, you should certainly discuss the fact that the NBS will not have access to
proceeds after the borrower’s death, and you may remind them that withdrawing funds shortly
before the borrower dies would be one option to make those funds available.
Q: Does the NBS sign the counseling certificate?
A: Yes. The new form of the certificate provides space for a NBS to be named and to sign the
certificate.
Q: What if the lender or underwriter requests that the NBS name be removed from the
certificate?
A: Advise them that HUD requires the NBS to receive counseling and to sign the certificate.
Q: If there are other non-borrowing owners participating in counseling, are their names
listed in the NBS space on the certificate or in the owner spaces?
A: Probably best to list them as owners, reserving the NBS space for actual non-borrowing
spouses.
Q: Is there any other paperwork that counselors must complete for NBS situations?
A: HUD refers to an individual statement that the NBS is to sign at counseling and states that
counselors should continue to use these forms.
Q: Has HUD provided a form for the NBS statement?
A: No. If the counseling agency does not have a form in use already, using the same text that is
specified in the ML for the NBS certification at closing would be a good start. Agencies can add
to this if they see fit.
Q: If the NBS is to sign the individual statement, and we are doing telephone counseling,
what do we do if we don’t get it back?
A: Keep a copy of the statement that you sent to the NBS, and make a note on it to indicate that
the NBS did not return the signed copy as requested. Keep it in your files. Alternatively, you
could tell the client that you will mail or fax their counseling certificate only after you have
received the NBS individual statement back.