Senators Voice Concerns for Reverse Mortgage Heirs

Two senators have written a letter to the Department of Housing and Urban Development requesting enforcement of rules that prevent foreclosure for heirs of reverse mortgage borrowers.

Senators Barbara Boxer (D-Calif.) and Charles Schumer (D-N.Y.) called on HUD Secretary Shaun Donovan in a letter sent Wednesday to ensure surviving spouses and heirs of deceased reverse mortgage borrowers aren’t forced out of their homes illegally.

The senators cited a New York Times article stating that an “an increasing number of heirs are facing foreclosure on their homes after receiving inaccurate and confusing information on their options following a reverse mortgage borrower’s death.”


Home Equity Conversion Mortgage (HECM) lenders are supposed to offer reverse mortgage borrowers and their heirs the option of satisfying loan obligations by repaying 95% of the home’s current appraised value.

But reverse mortgage companies are “increasingly threatening to foreclose unless heirs pay the mortgages in full,” according to the New York Times article, which didn’t provide figures for how many families are encountering this scenario.

“The failure on the part of the mortgage companies to offer the option of satisfying the loan by paying ninety-five percent of the home’s appraised value unfairly penalizes a borrower’s family members and heirs, who are unable to obtain refinancing to pay off the loan,” the senators wrote.

Rather than keep the home in the family, reverse mortgage heirs could end up facing foreclosure or being forced to sell the property, with other buyers able to purchase the property at 95% of its current market value, Boxer and Schumer continued.

But there is more to the issue than the Times article covered, says Peter Bell, president and CEO of the National Reverse Mortgage Lenders Association.

“The Times has part of the story,” Bell told RMD. “It doesn’t fully explain this is an issue that results when there has been no post-death conveyance of the property. HUD’s rules have required that there be a post-death conveyance in order for the 95% rule to be applicable.”

In some cases, an heir such as a spouse or child may be added onto the home title of a reverse mortgage borrower to avoid going through probate after the borrower has passed away, Bell explains. In those cases, there is no post-death transfer, and thus, the heir is not extended the 95% option.

“It’s a very technical issue,” he says. “If there’s not post-death transfer of the property, this has been the proper, compliant behavior on the part of lenders. ”

The New York Times on Wednesday recapped its coverage of the issue and mentioned the senators’ requests to HUD.

The senators asked Secretary Donovan to issue a mortgagee letter clarifying that a reverse mortgage obligation can be satisfied by the borrower or borrower’s estate by paying 95% of the the home’s market value and develop a letter for servicers to send to borrowers’ families and heirs that clearly outlines their options for settling the loan.

HUD is also urged to enforce the existing rule and to take any other steps necessary to “ensure heirs are accurately informed of this option and are not unnecessarily facing foreclosure at the same time they may be mourning the loss of a parent or other family member.”

Written by Alyssa Gerace

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  • To be clear the ONLY time there is no transfer of title due to the death of a HECM owner is if and only if title is in the name of a revocable trust of the borrower.

    So did the cases involve trusts? If it involved a transfer of title to an estate or heirs, the most recent HECM Servicing FAQ states the following:

    “10. FHA regulations at 24 CFR 206.125(c) permit a sale of the mortgaged property for at least the lesser of the loan balance or 95% of current appraised value if the loan is due and payable. Is a conveyance of the mortgaged property by will or operation of law to the estate or heir after the mortgagor’s death within the meaning of “sale?” New 07/19/2011

    Yes. When a HECM loan becomes due and payable as a result of the mortgagor’s death and the property is conveyed by will or operation of law to the mortgagor’s estate or heirs (including a surviving spouse who is not obligated on the HECM note) that party
    (or parties if multiple heirs) may satisfy the HECM debt by paying the lesser of the mortgage balance or 95% of the current appraised value of the property….

    …HUD interprets the word “sale” to include any post-death conveyance of the mortgage property (even by operation of law) to the borrower’s estate or heirs (including a surviving spouse who is not obligated on the HECM note). A loan payoff that occurs simultaneously with or immediately following such a post-death conveyance will be regarded as a sale transaction for purposes of section 206.125(c).”

    There is a lesson to be learned from this incident as well as the rants of Senator Claire McCaskill (D-Missouri — and no Marty, Claire still is not a Republican). Democrats are not the reliable friends of HECM lenders that the Bell brothers promote. Like the Bell brothers advocate, the mid-term elections should be a time that the industry votes its pocketbooks but perhaps it is time to realize it was not a Democrat or a Democratic Administration that signed the HECM program into law or fostered it so well during the period of incubation and beyond.

  • The New York Times seems to have an amazing amount of
    negative opinions about reverse mortgages without ever sighting a source, an example or a study to back up its negative claims.

    This once much revered newspaper is guilty of this irresponsibility
    in many other facets of the news as well, that is one of the main reasons their circulation has dropped so sharply. But
    that is not our topic for today.

    And as far as politicians jumping onboard, we all know
    disliking reverse mortgages is always good for getting your name in the paper. I see they also demanded no proof of these accusations.

    As an industry we should be demanding the New York Times
    back up these claims! We should be screaming for it!

    The New York Times is to reverse mortgages what Orson Welles
    was to pole vaulting!!!

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