Non-borrowing spouses still face eviction despite fix to reverse mortgage program – Scotsman Guide
Consumer advocates fear that thousands of elderly people could be evicted from their homes in the coming years once their spouses die because the federal government has offered no practical way to renegotiate the terms of reverse mortgages.
A coalition of groups sent U.S. Housing & Urban Development (HUD) a letter on March 9, claiming that HUD’s policy is so overly restrictive as to be no option at all. It means that potentially all the non-borrowing surviving spouses who were left off reverse mortgages originated before Aug. 4, 2014 likely will one day face eviction.
“Virtually no one will qualify,” said Odette Williamson, a staff attorney with the National Consumer Law Center, which penned the letter. “It is unworkable and no one will meet the terms and conditions.”
Reverse mortgages are set up so elderly homeowners over the age of 62 can get income off the home value, while still living in the home until they die. The loan amount, which can either come as a lump sum or in monthly payments, is calculated based on the borrower’s age. The older the borrower, the greater the principal amount they can obtain from the loan. The problem is that many reverse mortgages originated before August 2014 did not take into account the age of the younger spouse in calculating the benefits. Once the borrowing spouse dies, the surviving spouse has a tight window to pay off the loan or face foreclosure. An unknown number of spouses could face eviction.
HUD oversees the Federal Housing Administration (FHA), which insures the vast majority of reverse mortgages. Pressed by a federal lawsuit from the aging advocacy group AARP, HUD in January proposed a way for surviving spouses to keep their houses tied to reverse mortgages originated prior to Aug. 4, 2014. However, the hurdles are high. For one thing, the servicer has to agree to assign the loan to HUD, rather than go forward and foreclose on it. Also, the surviving borrower had to be either older or the same age as the deceased borrower when the loan was originated, or the spouse has to pay off the loan amount or 95 percent of the home value.
Williamson said most surviving spouses were left off the loans because they were younger, so they are automatically disqualified from the first option. Also, few surviving spouses can come up with a lump sum to pay off the loan within the tight window. She also said that HUD has not revealed how many non-borrowing spouses could potentially face eviction.
“A big part of this issue is that we simply don’t understand how many people are impacted by this issue,” Williamson said. “We really don’t know how to evaluate the options that they are putting out without a clear understanding of the scope of the problem.”
This problem has been fixed for newly originated loans. The federal government is now requiring that underwriters consider the age of the non-borrowing spouse. However, thousands of loans were originated before that policy changed.
Because the benefit of the reverse mortgage was largely based on the elder spouse’s age, it is hard to turn back the clock and recalculate the loan based on the younger surviving spouse, said Peter Bell, chief executive officer of the National Reverse Mortgage Lenders Association.
“AARP and its lawyers are trying to make a case that a spouse can stay no matter what,” Bell said. “It just mathematically doesn’t work. You cannot make an age-based loan and then extend the benefits to someone whose age is not considered.”
Via: http://www.scotsmanguide.com/News/2015/03/Non-borrowing-spouses-still-face-eviction-despite-fix-to-reverse-mortgage-program/?utm_source=TopNews032015&utm_medium=email&utm_campaign=TopNews