Advocacy Groups Warn of HECM Foreclosure Frustration for Spouses

Nearly a quarter of non-borrowing spouses who sought assistance under reverse mortgage foreclosure rules were rejected, according to a report from a pair of homeowner advocacy groups.

Of the 591 non-borrowing spouses who have sought help from the Department of Housing and Urban Development, 132 received denials, a new set of HUD data reveals.

The California Reinvestment Coalition and Jacksonville (Fla.) Area Legal Aid filed a Freedom of Information Act (FOIA) request for information regarding non-borrowing spouses. The groups found that 317 applicants successfully received assistance, while the remaining 142 requests were pending as of the data release.

“The stories and the facts are compelling, and the consequences are very dire, and you would think that all of the stakeholders are interested in fixing it,” California Reinvestment Coalition deputy director Kevin Stein told RMD in a phone interview.

HUD most commonly rejected applications for assistance because they were submitted more than 120 days after the death of the borrower, according to the report. Other reasons included a lack of sufficient documentation and loan balances and principal limits that did not meet the Federal Housing Administration’s tolerance levels.

The department introduced new rules regarding non-borrowing spouses through a 2014 mortgagee letter, which allows the widows or widowers of Home Equity Conversion Mortgage borrowers to remain in their homes as long as they continue to make tax and insurance payments and maintain the property to FHA’s satisfaction.

But consternation surrounding the rules has continued. Just last year, the National Reverse Mortgage Lenders Association asked HUD to extend the timeframe for non-borrowing spouses to claim the right to stay in the property to 180 days, noting that an exact length isn’t mentioned in the formal HECM paperwork.

“Having HECM loan documents not match mortgagee letters in this regard is both burdensome to lenders and puts HUD at further risk of litigation and loss,” NRMLA’s letter read.

NRMLA also encourages all non-borrowing spouses to have their names added to their property titles whenever possible, president and CEO Peter Bell told RMD in a statement.

“NRMLA continues to support efforts that will help more older adults remain in their homes after the death of a spouse who was named on the reverse mortgage loan,” Bell said. “The industry would welcome more flexibility from HUD to allow non-borrowing spouses a reasonable amount of time to express their desire to stay in their home and submit the required documentation.”

An e-mail to a representative from HUD was unreturned as of press time.

Stein likewise told RMD that HUD needs to provide clarifications to the process, though he also added that everyone involved in the process — from lenders to servicers to non-profit groups — should play a role.

“We can try and educate the non-borrowing spouses, but there has to be something good to educate them about,” he said. “There needs to be a clear, easy path for them to maintain their homeownership, and that doesn’t seem that that’s the case right now.”

Stein suggested that non-borrowing spouses have a single point of contact to help shepherd them through the process, informing them of the specific documentation they need and answering any questions that come up.

“Hopefully we can get to a point where the rules have been improved, the servicers are committed to implementing the rules, and dare I say that HUD enforces the rules,” he said.

Written by Alex Spanko

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