Congresswoman Wants More Relief for Reverse Mortgage Non-Borrowing Spouses

Congresswoman Maxine Waters (D-CA) is calling for the Department of Housing and Urban Development (HUD) to provide increased transparency for seniors participating in the Home Equity Conversion Mortgage (HECM) program, particularly on the issue of non-borrowing spouses.

In a letter sent to HUD Secretary Julián Castro, Waters expressed concern that many seniors are facing foreclosure, or will face foreclosure, due to deceptive lending practices and previous HUD protocol for the HECM program as they have affected non-borrowing reverse mortgage spouses.

“[HUD] has taken a number of steps in order to address this issue, but has fallen short of providing meaningful relief or transparency in its decision-making process,” Waters wrote in the letter.

She argues that by factoring in the age of the youngest borrower in determining reverse mortgage payouts created a “perverse incentive on the part of lenders to encourage couples applying for a HECM loan to remove the younger spouse from the home’s title in order to obtain a larger reverse mortgage payout.”

Furthermore, she cites HUD as having adopted an “erroneous interpretation” of the HECM statue as providing no protection to non-borrowing spouses, as a result of the agency’s ongoing clash with AARP.

“In the face of a court ruling, striking down HUD’s interpretation of the HECM statute as providing no protection for non-borrowing spouses, HUD has taken a number of steps to address this issue,” Waters wrote. “However, I continue to have concerns regarding the adequacy of the solutions that HUD has implemented thus far.”

For example, Waters sates that HUD has addressed this issue for HECM loans with case numbers issued on or after August 4, 2014, by requiring lenders to base the principal limit on the age of the youngest spouse, whether or not they are on the title of the home.

“I urge you to reconsider the limited scope of relief that HUD has offered thus far in response to the concerns raised by senior borrowers and advocates working on their behalf,” Waters wrote Castro. “While I understand the tension created by the need to balance the fiscal condition of the MMIF, and to protect borrowers who have been victimized by unfair lending tactics, I hope that HUD will do everything in its power to provide much needed relief to these senior citizens.”

In the interim, Waters is requesting that HUD provide data on the scope of the problem and the financial cost of the various options that the federal agency has at its disposal for providing relief.

Specifically, such data would include finding out, for HECMs with case numbers issued before August 4, 2014, how many borrowers have a non-borrowing spouse that is younger. Additionally, Waters also seeks annual data on how many households with HECMs find themselves in a situation in which the borrowing spouse dies before the non-borrowing spouse.

For HECMs with case numbers issued after August 4, 2014, Waters even wants to go so far as knowing how many borrowers HUD expects will re-marry, and therefore have a non-borrowing spouse that is not covered by Mortgagee Letter 2014-07.

Waters, who serves as ranking member of the House Financial Services Committee, writes her letter just weeks after HUD officially rescinded Mortgagee Letter 2015-03—by way of ML 2015-12—effectively revoking guidelines detailing the Mortgage Optional Election (MOE) Assignment of HECMs assigned before August 4, 2014.

Under the previous guidelines, lenders would have been able to assign eligible HECMs to HUD upon the death of the last surviving borrowing spouse, thereby allowing surviving spouses to remain living in the home despite their non-borrowing status.

Written by Jason Oliva

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