Reverse mortgages have become a popular—and sometimes controversial—way for Americans to make use of the accrued equity in their homes, especially for older homeowners. The latest controversy surrounds HUD foreclosures on homes participating in the home equity conversion mortgage (HECM) program, and more specifically foreclosures that involve the spouses of deceased borrowers. Now a pair of advocacy groups have raised concerns about the program, and HUD has responded.
According to the California Reinvestment Coalition and Jacksonville Area Legal Aid, of the nearly 600 non-borrowing spouses who requested aid from HUD to avoid foreclosure on their homes, 317 received assistance and 132 were denied. The two advocacy groups arrived at those figures via HUD data retrieved through a Freedom of Information Act request. Another 142 requests were still shown as pending. (This is only a small portion of those non-borrowers who could theoretically request assistance after the death of their spouse—the Washington Post estimates there may be as many as 12,000 non-borrowing spouses under the HECM program.)
Based on the HUD data, the top three reasons applicants were denied assistance under the program included requests for assistance that were submitted more than 120 days after the borrower’s death, instances where the loan balance and net principal limit did not meet FHA’s tolerance levels, and cases of “deficient documentation.”
“We can all agree that we should do everything we can to keep widowed seniors in their homes and to prevent all unnecessary foreclosures,” said Kevin Stein of the California Reinvestment Coalition. “It is not acceptable that any senior should fall through the cracks into homelessness due to inadequate public policy. We must fix this problem.”
The advocacy groups have recommended HUD immediately begin sending notice letters to all borrowers and non-borrowing spouses, explaining what is needed for non-borrowing spouses to remain in the home in the event of the death of their spouse.
However, HUD representatives say that the problem is overstated, largely due to a misinterpretation of the data. HUD public affairs specialist Brian Sullivan told Reverse Mortgage Daily, “Based upon data we gave them, they put two and two together and get something other than four.” According to Sullivan, the HUD stats quoted by the advocacy groups only represent “applications for loan assignments under the ‘mortgagee optional election’ (MOE), a program in which HUD pays the insurance claim but qualified non-borrowing spouses are allowed to remain in the home.”
Sullivan explained that the data is only used “to signify the number of the assignments or requests for these assignments, as opposed to the number of borrowers being kicked to the curb.”
Sullivan also referenced HUD mortgagee letters which explain the subject and requirements in detail.
“That is why counseling is so critical in the origination of these mortgages,” Sullivan told Reverse Mortgage Daily. “People have got to understand what a reverse mortgage is.”