Technology: Delivering value to your sphere

Forward on reverse: The dilemma of the underage spouse in reverse mortgage situationsAtare E. Agbamu, CRMSHECM, HUD, FHA A "Forward on Reverse" reader from Moline, Ill. sent the comment below. She asked two questions we will attempt to answer, expecting to learn from her situation. Dear Atare: I read your column regularly and enjoy it. I have closed a handful of reverse mortgages in the past and I have an issue with one I closed in November 2005. As required, the underage spouse was taken off title to complete a Home Equity Conversion Mortgage (HECM). They had done a line of credit and have since drawn the remaining available cash. They want to refinance to put him back on title, but now their available cash is negative $10,000. So, my understanding is that I cannot refinance this loan. I understand where the figures come from. What I don't understand is why an underage spouse must be removed from title. And what can be done legally to protect that spouse if the one in title passes away? [emphasis added] I have contacted my lender and they haven't given me any information. Can you shed some light on this? Sue. L. of Moline, Ill. Dear Sue: Thank you very much for your kind response and for your questions. We're going to attempt an answer. Let's begin with your first point: "What I don't understand is why an underage spouse must be removed from title." This is my guess: the couple desperately needs cash, and they conclude that a reverse mortgage is their only option. The underage spouse makes them ineligible and they decide he has to get off the title for the deal to go through. In other words, they determined the cash from a reverse mortgage is of greater immediate value to them than the property rights of the underage spouse. No matter how you look at it, it is a difficult situation. "I'm afraid there are no easy answers here. If the younger spouse stays on title, they may not qualify for the loan. If the younger comes off title, he could be subject to divestment at maturity," said a prominent regulatory compliance attorney from Washington, D.C. It's usually a family decision that a lender should not even suggest. It's also a legal issue. If a situation comes up that could lead to an underage spouse being taken off title, the reverse mortgage originator should ask the couple to consult an attorney, as well as an experienced U.S. Department of Housing and Urban Development (HUD)-approved reverse mortgage counselor. In Mortgagee Letter 2006-25, dated Sept. 28, 2006, HUD mandates HECM counseling for the underage spouse. Here's what the Mortgagee Letter said about the matter: "During counseling, all parties must be made aware that the Federal Housing Administration (FHA)-insured HECM cannot be assumed by the non-borrower spouse [or the underage spouse] upon the HECM borrower's death or change of primary residence. In other words, the HECM becomes due and payable upon the HECM borrower's death, or when the real estate, which serves as the security for the FHA-insured HECM, is no longer the primary residence of the HECM borrower." Mortgagee Letter 2006-25 answered your second question: What can be done legally to protect that spouse if the one in title passes away? Thomas D. Christensen, an attorney and president of Burnsville, Minn.-based RealStar Title, agreed that the underage spouse is on rough legal terrain. "Not much can be done for the underage spouse unless the property is located in a state such as Minnesota, where a spouse has certain spousal rights to real property despite not being in title," Christensen said. "In the event the spouse holding title passes away, then the underage spouse may be able to acquire the property through probate." Even in states such as Minnesota, where spousal right in property is protected, the Washington, D.C.-based regulatory compliance lawyer observed that most lenders would require the non-titled spouse to sign the mortgage (deed of trust) to fortify their lien position on the property at maturity. By signing the mortgage, he essentially subjects any spousal rights that he has in the property to the lien of the lender. If he refuses to sign, the lender would refuse to make the reverse mortgage loan. Christensen, whose company closes several reverse mortgage transactions each month, said whatever rights the underage spouse gets will rest on state law. "... The laws of some states may allow the spouse who retains title to dispose of the property however that spouse sees fit, without the underage spouse's consent. In that instance, the underage spouse may have absolutely no rights to the property or proceeds of sale. It all depends upon the laws of the particular state," he said. Again, taking an underage spouse off title should be the couple's decision without input from the reverse mortgage originator. Often in these situations, the couple has decided that cash from the reverse mortgage is more valuable to them than the underage spouse's property rights. The underage spouse may or may not have spousal rights to the property, depending on state law. As HECM loans super-insurer, HUD notes in Mortgagee Letter 2006-25, that the underage spouse is out of luck should the borrowing spouse die. The originator must ensure that the couple gets HUD-approved reverse mortgage counseling before they proceed with the transaction. HUD's reverse mortgage counseling for the couple should provide enough cover for the originator. Fifth anniversary note This is the 60th consecutive installment of "Forward on Reverse." My aim remains the same as five years ago--to help originators prepare for the huge demographic changes ahead in residential mortgage lending. Reverse mortgages are the only residential mortgage programs that address the extra-cash needs of older customers without tying them down to regular monthly repayments. Whether or not you plan to get into reverse mortgages, you should know about these innovative home loans and train your home lending teams to be literate in them. It is essential. Please re-read my conversation with Robert M. Couch, president of Ginnie Mae ["Forward on Reverse: Ginnie Mae gets reverse ready: A conversation with Robert M. Couch," The Mortgage Press, January 2007]. For mortgage professionals who are still reluctant about reverse mortgages, Couch advised, "I would tell them to take some time to look at the growth rate of this product and take time to look at the demographic changes that are coming in the marketplace, where the population is aging at a fairly rapid clip. And when you look at those two factors together, it makes a fairly compelling case that if you don't get involved in reverse mortgages, you are going to miss a substantial opportunity." For me, the key word in Couch's last sentence is "substantial." Folks like him choose their words carefully. The book, "Think Reverse!" is finally going to come out this year. The process turned out to be longer than we thought. The delay has been a blessing; it is going to include and anticipate major changes in Reverse Land since November 2005, enhancing its value to readers. We are excited. Thank you for reading "Forward on Reverse!" Think reverse. Move forward! Atare E. Agbamu, CRMS is president of ThinkReverse LLC, a reverse mortgage training and consulting firm based in the Twin Cities and is a consultant with Credo Mortgage. Atare is regarded as an emerging authority on reverse mortgages and is frequently consulted by financial professionals and families across America. His reverse mortgage interviews have been Web cast on MortgageMag Live! He can be reached by phone at (651) 389-1105 or e-mail [email protected]