A group of consumer advocates has expressed concern over non-borrowing spouses facing foreclosure and eviction following the death of a borrowing spouse, according to comments the group recently submitted totaling 65 pages to the U.S. Department of Housing and Urban Development (HUD).
HUD and FHA amended the Home Equity Conversion Mortgage (HECM) program in January to prevent reverse mortgage lenders from calling the note from a surviving non-borrowing spouse. The amendment allowed for deferral of "due and payment status" for eligible non-borrowing spouses, hence deferring the foreclosure process, for FHA case numbers assigned on or after August 4, 2014 and for certain eligible HECMs and surviving non-borrowing spouses for case numbers issued before August 4, 2014.
The comments were submitted by the National Consumer Law Center on behalf of its low-income clients, Consumers Union, California Reinvestment Coalition, Housing and Economic Rights Advocates, Institute on Aging, and The National Housing Law Project. The groups claim in their letter that HUD amended its HECM policy in response to several lawsuits filed on behalf of non-borrowing spouses facing eviction, but they claim that even with the amendment, not enough people will qualify for the benefits because reverse mortgages originated prior to August 2014 did not take into account the often younger surviving spouse's age.
In order for the non-borrowing spouse to qualify for the HECM relief and keep their house under the amendment, first off, the servicer has to agree to assign the loan to HUD rather than pursue foreclosure. In addition, the surviving spouse must be either older or the same age as the deceased borrower at the time the loan was originated – or the surviving spouse must pay off the entire loan amount or 95 percent of the home's value.
These requirements keep many from qualifying, because in many cases the surviving spouse is younger, and on top of that, they don't have the money available to pay such a large sum.
One of the big problems the groups are facing with this issue is that HUD has not revealed how many people are affected or how many non-borrowing, surviving spouses are facing eviction and foreclosure.
"Though HUD stated that it would consider the cost, legality and practicality of its action with respect to non-borrowing spouses, the agency has not provided data or information to support its analysis, conclusions or recommendations," the letter said. "Indeed, the agency has yet to provide information on the scope of the problem. Nor has HUD disclosed information regarding the actual number of outstanding loans with non-borrowing spouses."
In a report by the Consumer Financial Protection Bureau last month on consumer complaints regarding reverse mortgages, the most frequent complaint was on surviving, non-borrowing spouses suddenly facing foreclosure upon the death of a borrowing spouse. The report stated that "some consumers report that their loan originator falsely assured them they would be able to add the other spouse to the loan at a later date." Similarly, others complained that the loans are often difficult to repay and that lenders often throw obstacles in the way when consumers take steps to avoid foreclosure.
The government now requires loan underwriters consider the non-borrowing spouse's age, which solves the problem for newly originated loans. It remains to be seen what will happen with those originated before last August, however.