Reverse mortgage professionals may occasionally encounter a couple where a younger partner may need to be named as a HECM non-borrowing spouse (NBS). Even if you’re only closing an occasional HECM loan with a spouse under the age of 62, you should keep these guidelines in mind.

First: Know the NBS Guidelines.

Before you meet with a couple with one spouse under the age of 62 be certain that you have a thorough understanding of who is protected by HUD’s non-borrowing spouse policy, who isn’t, and what the homeowners must know before closing the loan. Non-borrowing spouses typically do not meet the HECM’s minimum age of 62. However, there are other reasons one party may be designated as a NBS. In his 2024 edition of Understanding Reverse Dan Hultquist notes homeowners who have prenuptial agreements, homeowners who have remarried and want the home to be bequeathed to their biological children, or don’t plan on remaining married may opt for a non-borrowing spouse designation. 

Two types of non-borrowing spouses

An Ineligible Non-Borrowing Spouse typically doesn’t live in the home that secures the loan, has no protections or allowances to remain on the property after the borrower passes away, and their age isn’t used in determining the HECM’s Principal Limit Factor (PLF). An Eligible Non-Borrowing Spouse occupies the home with the borrowing spouse, has their age used to determine the HECM’s principal limit, and is protected after their spouse dies with a deferral period which postpones the loan being called due and payable.   Before 2014 all spouses of a HECM borrower under 62 were ineligible non-borrowing spouses. Simply put, they had no protections that would allow them to remain in the home after the death of their spouse (primary owner). Their choices were to repay the balance owed or to sell the home and relocate when the loan became due and payable. Such circumstances lead AARP to lobby the Department of Housing and Urban Development to provide protections to prevent younger spouses of HECM borrowers from being displaced from their homes. In response, HUD issued Mortgagee Letter 2014-07 in April 2014 which introduced NBS protections.

Second: Plan Ahead

Couples naming a non-borrowing spouse must be informed about how to ensure continued NBS protections during a HECM’s deferral period, the rights of the surviving spouse, and the impacts of accessing loan proceeds. The NBS policy protects eligible spouses from being displaced from their homes. However, access to continued HECM term or tenure payouts, or access to funds in a line of credit ceases. In addition, Lifetime Expectancy Set Aside (LESA) the payment of property taxes and homeowners insurance are suspended requiring a surviving non-borrowing spouse to resume paying property charges. Although the term “non-borrowing spouse” should be self-explanatory, Dan Hultquist adds, “there is only one case where funds can be disbursed to, or on behalf of, a non-borrower. That is when the last borrower has passed away and the lender needs to release money for a repair set aside following inspections.” Therefore, the borrower and non-borrowing spouse must be fully informed of the significant impacts on household cash flow.

Final Thoughts

While non-borrowing spouse protections can help protect a surviving spouse from being displaced from their home, they don’t ensure access to the loan proceeds upon which they may be dependent to meet their monthly cash flow needs or property charge payments.  There are several ways these risks could be mitigated under the guidance of a financial advisor. Nevertheless, the onus of forewarning couples with a non-borrowing spouse lies upon the reverse mortgage originator. Resources:  Understanding the Reverse Mortgage Non-Borrowing Spouse [Understanding Reverse Blog]