April 17, 2024

Bucks: Good News for Spouses of Reverse Mortgage Holders

In the face of a lawsuit from the AARP Foundation, the Department of Housing and Urban Development has backed off an apparent policy change that was putting some widows and widowers on the brink of foreclosure.

The dust-up involves reverse mortgages, financial products that allow older Americans with a decent amount of home equity to tap some of that equity if they are at least 62 years old. Unlike a home equity loan, where you have to pay the money back, with a reverse mortgage the bank pays you, say in a lump sum or in monthly payments. Once you no longer live in the home, you or your executor (if you’re dead) sells it and pays the bank back.

The foundation and Mehri Skalet, a law firm, sued HUD in the wake of a policy letter in 2008 that seemed to state that widows or widowers who were not listed on a spouse’s reverse mortgage would have to repay the full amount of the deceased spouse’s mortgage. They’d have to do so even if the home was worth less than the outstanding loan.

Not long after, some surviving spouses found themselves unable to pay off the loans or get a new mortgage for the outstanding balance on the old reverse mortgage. As a result, they ended up in foreclosure proceedings. The foundation had sued on behalf of three of them.

In a letter it released this week, HUD rescinded the 2008 letter. And while this week’s letter didn’t say so specifically, Jean Constantine-Davis, a senior attorney for AARP Foundation Litigation, reports that the lenders will now halt foreclosure proceedings against its three plaintiffs for the time being. A HUD spokesman did not return a call seeking comment.

The lawsuit is not over, though. The foundation hopes that a judge will confirm that HUD cannot ever force a widow, widower or heir to pay a reverse mortgage lender more than a home is actually worth, whatever the balance may be on the mortgage.

It also wants to establish surviving spouses’ right to stay in the home if they so choose, even if they weren’t party to the original reverse mortgage. That might mean that the lender is on the hook for the reverse mortgage loan longer than it expected to be. But Ms. Constantine-Davis said she thought that as the guarantor, HUD ought to buy the loans from the lender if this became a problem for the lender.

If that becomes too burdensome, HUD might make new rules that could, say, require that both spouses always be listed on the mortgage, while making some kind of provision for people who get married after one of them has gotten the reverse mortgage loan and wants to add a spouse to the mortgage.

Meanwhile, Ms. Constantine-Davis notes that HUD does not currently require both spouses to undergo counseling when only one of them applies for a reverse mortgage. (One spouse may apply alone because the monthly payout from the lender is usually higher if just the older spouse applies.) Without explicit counseling, spouses who are not on the mortgage may not know that they could end up in a situation like those of the plaintiffs in this case.

One easy fix might be for HUD to make both spouses come for counseling no matter what. Another, as I mentioned in a column a few weeks ago, is much simpler and doesn’t require more regulation: Don’t ever take yourself off the loan, even if it does mean that the payout is lower.

Article source: http://feeds.nytimes.com/click.phdo?i=bb97f9c8db929e2d7492cda9cb19e109

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