Three surviving spouses of reverse mortgage borrowers have received good news on their legal challenge to a 2008 rule change by the Department of Housing and Urban Development (HUD).
HUD announced Wednesday that it is rescinding the 2008 rule, effective immediately. HUD informed the attorneys representing the surviving spouses who faced imminent foreclosure that mortgage lenders-services, at the request of the department, had halted the foreclosures, pending disposition of their federal lawsuit. Meanwhile, other issues revolving around surviving spouses of reverse mortgage borrowers remain, and the lawsuit will proceed.
The three plaintiffs, each surviving spouses of reverse mortgage borrowers, are Robert Bennett of Annapolis, MD; Delores J. Moore of Covington, IN, and Leila Joseph of Brooklyn, NY.
The case was filed in federal court in the District of Columbia on March 8 by AARP Foundation Litigation and Mehri & Skalet, PLLC of Washington, D.C.
Jean Constantine-Davis, a senior attorney with AARP Foundation Litigation, said: "We are very pleased with HUD's decision to withdraw the mortgagee letter - it was the right thing to do. We hope that HUD will now make this remedy available for all persons in the same circumstances."
Steven A. Skalet of Mehri & Skalet stated: "This is terrific for surviving spouses and families of reverse mortgage borrowers. We still need to understand the details and where HUD is going on the issues we have raised, but we are pleased by this first significant step."
The focus of the latest HUD action is a department rule, in place since 1989, which states that a borrower or heirs would never owe more than the home was worth at the time of repayment. But, at the end of 2008, HUD abruptly changed the policy and said that an heir - including a surviving spouse who was not named on the mortgage - must pay the full mortgage balance to keep the home, even if it exceeds the value of the property. The federal lawsuit argues that this rule does not just violate HUD rules; it violates existing contracts between reverse mortgage borrowers and lenders, and negates a key purpose for which borrowers had been paying insurance premiums.
The lawsuit alleges that, as a result, many spouses or heirs who want to purchase the property have been unable to do so because they cannot obtain financing that exceeds the current value of the property.
The new HUD action rescinds the 2008 rule change.
An important remaining issue in the suit involves protection in the Home Equity Conversion Mortgage program (HECM) statute - titled "Safeguard to Prevent Displacement of Homeowner". It provides that HECM homeowners cannot be displaced from their homes until the HECM terminates. It then states that "...for purposes of this subsection, the term 'homeowner' includes the spouse of a homeowner." Therefore, the spouse - even one who is not named on the mortgage - cannot be arbitrarily displaced from the home upon the death of the borrower.
Despite the clear language, HUD has never recognized the protection this non-displacement provision affords the spouse of a homeowner, according to the lawsuit.
A reverse mortgage is a loan that allows older homeowners to convert the equity in their homes into cash. It is the "reverse" of a traditional mortgage, in which the borrower repays the borrowed sum on a monthly basis. Reverse mortgage borrowers receive money in the form of a loan that must be paid back out of their home equity.
Reverse mortgage borrowers are not required to make monthly or other periodic payments to repay the loan, other than payment of property taxes and home insurance premiums. Instead, the loan balance increases over time and the loan does not become due and payable until one of several specific events occur, for example, the last homeowner dies, moves permanently, or sells the home.
The loans are insured under the Home Equity Conversion Mortgage (HECM) program, and because of the complexity of the program and because it is specifically tailored to meet the needs of those 62 and older, Congress included special protections for HECM borrowers.
The three plaintiffs, all of modest means, were adversely affected by HUD's actions. Under HUD's rules, they do not qualify as "homeowners" because they were not listed on the original reverse mortgage documents with their spouses.
AARP Foundation Litigation (AFL) is an advocate in courts nationwide for the rights of people 50 and older, addressing diverse legal issues that affect their daily lives and assuring that they have a voice in the judicial system.
AFL expertise spans many specific areas of federal and state law, including:
Age Discrimination in Employment
Consumer, financial fraud and utilities
Employee benefits, including pensions
Health and long-term care, including Medicaid, Medicare and prescription drug affordability
Housing, including predatory mortgage lending, and livable communities
Low-income benefits, such as the Supplemental Nutrition Assistance Program (SNAP)