The new Housing & Urban Development policy regarding widowed homeowners and surviving heirs of reverse mortgage borrowers who die has consumer advocates and community housing groups worried there won’t be any real protection.
A coalition of consumer advocates and attorneys sent a letter to the HUD this week, charging that the new policy is so restrictive that virtually all surviving non-borrowing spouses will be excluded from relief.
“HUD needs to go back to the drawing table on this policy and it needs to fully disclose how it is making this policy, how many people are potentially affected, and what the costs and benefits are with various options,” Odette Williamson, staff attorney at the National Consumer Law Center, said. “Until a new policy is in place, HUD should enact an immediate moratorium on foreclosures for surviving spouses.”
Reverse mortgages can be used by seniors who are aged 62 or older as a last resort option to supplement their income.
In the past, with HUD turning a blind eye, mortgage brokers encouraged couples to leave the younger spouses off of the mortgage as a way to qualify for the mortgage if the younger spouse wasn’t yet 62 years old. In most cases, the couples were promised that if the older spouse passed away, the younger spouse could remain in the home even if they weren’t listed on the mortgage. Unfortunately, that has not been the case, and widows and widowers are facing foreclosures and evictions as a result.
After a lawsuit brought by AARP, a federal judge ordered HUD to revise its policies in order to address this problem and HUD announced the new policy in January 2015.
Advocates have widely denounced the new policy, citing the eligibility requirements as nearly impossible for the majority of surviving spouses to meet.
Under the new policy, a reverse mortgage service could assign the loan to HUD. However, even if the servicer chose this option – at their discretion – the surviving spouse would then most likely need to make a large, lump-sum payment to meet the Principal Limit Test, something that most surviving spouses will be unable to do.
“At a Federal Reserve and OCC hearing last month, a bank CEO remarked that foreclosing on seniors is happening in part because of HUD policy,” said Kevin Stein, associate director of the California Reinvestment Coalition. “While we don’t absolve the industry for its role in this, it’s clear this new policy is a disaster for surviving spouses. HUD can and should do better, and reverse mortgage servicers should stop all foreclosures on surviving spouses until then.”
Craig Briskin, a partner with Mehri & Skalet, PLLC in Washington, D.C., represents the plaintiffs in the Bennett and Plunkett cases, and filed a challenge to the new policy last week.
"HUD has betrayed its obligation to seniors, whom the reverse mortgage program is supposed to protect. We will continue to fight until HUD obeys federal law and protects spouses of reverse mortgage borrowers from foreclosure,” Briskin said.
Maeve Elise Brown, executive director of Housing and Economic Rights Advocates, added, “It is shocking that HUD would not take action to protect vulnerable seniors as much as possible. We encourage HUD to take this opportunity to do so."