Senators Raise Questions About Reverse Mortgages and Trump Budget

A pair of senators from opposite sides of the aisle on Wednesday sent a joint letter to the Department of Housing and Urban Development, seeking clarification about a proposed change to the rules protecting non-borrowing spouses of reverse mortgage borrowers.

Sen. Marco Rubio, a Florida Republican, and Sen. Catherine Cortez Masto, a Nevada Democrat, asked for “additional information” about an appendix in the Trump administration’s proposed fiscal year 2018 budget, which appeared to modify existing Home Equity Conversion Mortgage program rules regarding non-borrowing spouses.

The White House document called for a change in the language of the National Housing Act to clarify that the term “mortgagor” does not apply to “the successors and assigns of the original borrower under a mortgage.” In addition, the administration appears to request the removal of a phrase that expands the definition of “homeowner” to include spouses of homeowners.

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The phrase appears in a passage that prevents the Federal Housing Administration from insuring any HECM loan that does not defer repayment until the homeowner’s death; by currently including husbands and wives of borrowers under the definition of “homeowners,” the program ensures that spouses cannot be removed from their homes after the borrower’s death.

The letter, addressed to HUD secretary Ben Carson and budget director Mick Mulvaney, expressed concern that the change might erode protections for spouses of HECM borrowers, who for years were subject to possible foreclosure proceedings if they were not explicitly named on the reverse mortgage — for instance, if the spouse died or was forced to move into a long-term care facility.

“Given the gravity of potential changes to this law, we therefore request a written response outlining the rationale underlying this proposed change,” Rubio and Cortez Masto wrote. “We also urge that you continue to ensure that widows do not face eviction in these circumstances.”

Spokespeople for HUD and the National Reverse Mortgage Lenders Association, which had previously indicated that it was still reviewing the proposed HUD budget, did not respond to requests for clarification on the issue at press time.

A staffer in Cortez Masto’s office confirmed to RMD that the removal of the non-borrowing spouses sentence prompted the senator’s concern for the issue.

“We think it could backtrack on some of the surviving spouse protections put in place over the last few years, and we were just inquiring what the intention was of this provision, and what the budget impact would be,” the staffer said.

Rubio and Cortez Masto’s letter mentioned cases in which non-borrowers in their respective home states were forced to leave their homes following the deaths of spouses. The senators also acknowledged recent changes to the program that allow such residents to remain in their homes, referring to FHA program updates made in 2014 and 2015 — as RMD covered at the time.

President Trump’s proposed budget, which would slash a total of $6.2 billion from HUD’s coffers, remains simply the president’s wish list; the federal budget is the domain of the legislative branch, with the House and Senate expected to provide their own budget guidance in the coming months. The 2018 fiscal year begins this October.

Written by Alex Spanko

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  • The law in 12 USC 1715z-20(j) does in fact disagree with Mortgagee Letters 2014-07, 2015-02 and 2015-15. The Senators need to correct the mess that HUD has created.

    A few of us have been arguing that HUD is fundamentally wrong in creating a new category called non-borrowing qualified spouses. By doing so, HUD discriminated against spouses who married the borrower after the HECM went in place along with all other non-borrowing spouses who do not meet the qualified requirements when it comes to the death of the borrower and to all non-borrowing spouses when it comes to required residency to defer the due and payable clause.

    While HUD has every right to do that under the Reverse Mortgage Stabilization Act of 2013 found at 12 USC 1715z-20(h)(3) on a prospective basis, it had no right to change the definition of homeowner found in 12 USC 1715z-20(j) by adding qualifying requirement restrictions on the term spouse retrospectively as it did in Mortgagee Letter 2015-15. If it is allowed to do so, it should NOT apply to any HECM with a case number assigned any earlier than August 9, 2013 (the date of enactment of the Reverse Mortgage Stabilization Act of 2013) if not 6/12/2015, the date of Mortgagee Letter 2015-15.

    HUD has allowed this definition to stand for over 27 years with no challenge. At least one federal appellate court has agreed that HUD should not be permitted to change the definition of homeowner retroactively.

    • You are correct with regard to the need of Congress to make congruent the language with the rules. I do thank HUD for making the change in the first place; it has done irreparable damage to an (otherwise) noble congressional intention. I am also in favor of the peripheral applications the HUD rule changes have allowed (e.g. Parent/Child siblings, Same-sex, etc) as it really opened this program up to meet the original Congressional intent (which was) to “help Seniors” subsidise the cost of retirement without jeopardising their primary residence.

      • Dan,

        Yes, for the few spouses who can “qualify.” Mortgagee letters 2014-07, 2015-02, and 2015-15 are nonsense rulings that belong in the garbage heap with all other such “great ideas.”

        Please demonstrate how it has helped one of these nontraditional spouses you name. I will also point out how it has not since PLFs are generally lower and there is absolutely no security whatsoever that the non-borrowing spouse who may be relying on the deferral will ever get it. All it takes is a divorce by the borrowing spouse and poof, it is gone with NO additional property rights at stake in the property settlement.

        Non-borrowing qualified spouse status “is but an ILLUSION filled with sadness and confusion.” In ads throughout the Internet, originators are promising that non-borrowing spouses are now taken care of in HECMs. That is a lie for those who are not and can not be qualified and those qualified spouses today who will not be so by the time of the death of their borrowing spouse.

        It is time that AARP shake Congress to force HUD to accept the clear and unambiguous language in 12 USC 1715z-20(j).

  • I highly agree with both The_Cynic and Dan Turner. This is a mess that MUST be corrected, lets see if time (Not to long) will take care of this!

    John Smaldone

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