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