Despite its ongoing efforts to address challenges faced by reverse mortgage non-borrowing spouses, the Department of Housing and Urban Development (HUD) is receiving pushback from consumer advocate groups, which denounce the agency’s latest guidance.
Earlier this week, advocates and attorneys sent a letter to HUD about its new policy, issued by the Federal Housing Administration in January. The policy, under the home equity conversion mortgage (HECM) program, allows lenders the option to delay foreclosure of non-borrowing spouses.
While it’s not a requirement, lenders will now have the option to assign eligible HECMs to HUD upon the death of the last surviving borrowing spouse, thereby allowing eligible surviving spouses the opportunity to remain in the home despite their non-borrowing status, according to Mortgagee Letter 2015-03.
Consumer groups, however, charge that this revised guidance is “nearly impossible for the majority of surviving spouses to meet,” citing challenges stemming from the Principal Limit Test.
“Under the new policy, a reverse mortgage servicer could assign the loan to HUD. However, even if the servicer chose this option (at their discretion), the surviving spouse would then most likely need to make a large, lump-sum payment to meet the Principal Limit Test, something that most surviving spouses will be unable to do,” the groups write in a recently released statement.
According to HUD’s Mortgagee Letter, a payment may be made to reduce the unpaid principal balance in order to meet the requirements under the Principal Limit Test. When certain requirements are not met within 90 days after the Mortgagee Optional Election (MOE) Assignment or within 180 days after the publication of the Mortgagee Letter — whichever is later — the lender may proceed with foreclosure.
Those fighting back against HUD’s non-borrowing spouse changes include Kevin Stein of California Reinvestment Coalition, Odette Williamson of the National Consumer Law Center (NCLC), Maeve Elise Brown of Housing and Economic Rights Advocates, Sandy Jolley, a reverse mortgage suitability and abuse consultant, and others.
In its letter to HUD, NCLC asserts that Mortgagee Letter 2015-03 will not protect surviving spouses from displacement, but will lead to more foreclosures. Instead, the letter proposes that HUD develop “more effective solutions” that will keep non-borrowing spouses in their home and “fulfill the true spirit and intent of the HECM authorizing statute.”
Written by Emily Study