Groups Charge That New HUD Policy Gives Little Relief to Surviving Spouses of Reverse Mortgage Holders

Consumer advocacy groups are denouncing the U.S. Department of Housing and Urban Development’s (HUD) latest attempt to protect the spouses of reverse mortgage holders from being forced out of their homes when the mortgage holder dies. 

HUD’s plan, outlined in Mortgagee Letter 2015-03, “will not protect surviving spouses from displacement and will lead to more foreclosures,” the National Consumer Law Center charges in comments on the new policy filed on behalf of its low-income clients and five other advocacy groups.

As I previously reported, couples often fail to put both spouses on the reverse mortgage loan, either because one spouse is under age 62 or they are urged to do so by aggressive lenders in order to get a bigger loan. Few couples are aware of the potentially catastrophic implications.  In the past, if only one spouse's name was on the mortgage and that spouse died, the surviving spouse would be required to either repay the loan in full or face eviction.  

In 2013 a U.S. district court ruled that in not protecting spouses from foreclosure, HUD was violating the reverse mortgage statute, and the court ordered that the agency find a way to shield surviving spouses from foreclosure and eviction.  In response, HUD began by issuing a new rule in 2014 to help protect spouses left off loans written after August 4 of that year.  But the rule did nothing for non-borrowing spouses on loans that had been written before that date.

Mortgagee Letter 2015-03, issued in January 2015, was aimed at this group.  Under the new policy, when the borrowing spouse dies reverse mortgage lenders have the option of assigning the loan to HUD, a move that would allow an eligible surviving spouse to remain in the home.  However, the consumer groups charge that HUD’s guidance is so unclear that most lenders will choose the safer alternative of foreclosure, and that even if lenders do opt for the assignment route, few surviving spouses will qualify for it.  This is because the spouses will have to come up with a large sum of money to quickly pay down the loan in order to pass a HUD-prescribed loan limit test, a feat that will prove “impossible for many newly widowed non-borrowing spouses.”

The National Consumer Law Center and the other groups recommend alternative options that they say will provide true relief to non-borrowing spouses facing foreclosure while protecting the integrity of the insurance funds.

To read the Center's comments on the new HUD policy, click here.