Washington DC – March 12, 2015 – (RealEstateRama) — Earlier this week, a group of consumer advocates and attorneys sent a letter to the Department of Housing and Urban Development (HUD) about a new HUD policy that was supposed to help widowed homeowners and surviving heirs after a reverse mortgage borrower passes away. A federal judge ordered HUD to create a new policy, but advocates charge that HUD’s new policy is so restrictive that virtually all surviving non-borrowing spouses will be excluded from relief.
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 lawsuits (Bennet v. Donovan and Plukett v. Donovan) brought by AARP and the law firm of Mehri & Skalet, 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.
Kevin Stein, associate director of the California Reinvestment Coalition, comments: “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. 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.”
Odette Williamson, staff attorney at the National Consumer Law Center, adds: “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. Until a new policy is in place, HUD should enact an immediate moratorium on foreclosures for surviving spouses.”
Craig Briskin, a partner with Mehri & Skalet, PLLC in Washington, DC, who represents the plaintiffs in the Bennett and Plunkett cases, and who filed a challenge to the new policy last week, comments: “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.”
Maeve Elise Brown, executive director of Housing and Economic Rights Advocates, comments: “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.”
Sandy Jolley, a reverse mortgage suitability and abuse consultant adds: “It is disgraceful that HUD is deliberately violating the intention of the HECM program to keep seniors in their home, and forcing the foreclosure and eviction of surviving spouses shortly after the borrower spouse dies.”
Shawna Reeves, director of elder abuse prevention at the Institute on Aging, says, “Vulnerable elders will continue to wind up homeless under HUD’s new policy on surviving spouses of reverse mortgage borrowers. This is unacceptable and needs to change. Elders’ lives are at stake.”
Prescott Cole, California Advocates for Nursing Home Reform Senior Attorney, adds: “The problems aren’t simply the spouses being faced with foreclosure after the death of their loved ones, when the borrower dies everyone living in the home will be evicted if the loan cannot be repaid.”
Letter to HUD , drafted by NCLC, signed onto by Consumers Union, California Reinvestment Coalition, National Housing Law Project, Housing and Economic Rights Advocates (HERA), and Institute on Aging.
Letter to HUD by Sandy Jolley
On February 26, 2015, the Federal Reserve and Office of the Comptroller of the Currency held a public hearing about a proposed bank merger. Surviving spouses, consumer attorneys, and surviving heirs spoke about their struggles with Financial Freedom, a reverse mortgage servicer owned by OneWest Bank. Read their testimonies here: Surviving Heirs Testify about Experiences with Financial Freedom and OneWest Bank Foreclosures