Advocacy Groups Warn of HECM Foreclosure Frustration for Spouses

Nearly a quarter of non-borrowing spouses who sought assistance under reverse mortgage foreclosure rules were rejected, according to a report from a pair of homeowner advocacy groups.

Of the 591 non-borrowing spouses who have sought help from the Department of Housing and Urban Development, 132 received denials, a new set of HUD data reveals.

The California Reinvestment Coalition and Jacksonville (Fla.) Area Legal Aid filed a Freedom of Information Act (FOIA) request for information regarding non-borrowing spouses. The groups found that 317 applicants successfully received assistance, while the remaining 142 requests were pending as of the data release.

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“The stories and the facts are compelling, and the consequences are very dire, and you would think that all of the stakeholders are interested in fixing it,” California Reinvestment Coalition deputy director Kevin Stein told RMD in a phone interview.

HUD most commonly rejected applications for assistance because they were submitted more than 120 days after the death of the borrower, according to the report. Other reasons included a lack of sufficient documentation and loan balances and principal limits that did not meet the Federal Housing Administration’s tolerance levels.

The department introduced new rules regarding non-borrowing spouses through a 2014 mortgagee letter, which allows the widows or widowers of Home Equity Conversion Mortgage borrowers to remain in their homes as long as they continue to make tax and insurance payments and maintain the property to FHA’s satisfaction.

But consternation surrounding the rules has continued. Just last year, the National Reverse Mortgage Lenders Association asked HUD to extend the timeframe for non-borrowing spouses to claim the right to stay in the property to 180 days, noting that an exact length isn’t mentioned in the formal HECM paperwork.

“Having HECM loan documents not match mortgagee letters in this regard is both burdensome to lenders and puts HUD at further risk of litigation and loss,” NRMLA’s letter read.

NRMLA also encourages all non-borrowing spouses to have their names added to their property titles whenever possible, president and CEO Peter Bell told RMD in a statement.

“NRMLA continues to support efforts that will help more older adults remain in their homes after the death of a spouse who was named on the reverse mortgage loan,” Bell said. “The industry would welcome more flexibility from HUD to allow non-borrowing spouses a reasonable amount of time to express their desire to stay in their home and submit the required documentation.”

An e-mail to a representative from HUD was unreturned as of press time.

Stein likewise told RMD that HUD needs to provide clarifications to the process, though he also added that everyone involved in the process — from lenders to servicers to non-profit groups — should play a role.

“We can try and educate the non-borrowing spouses, but there has to be something good to educate them about,” he said. “There needs to be a clear, easy path for them to maintain their homeownership, and that doesn’t seem that that’s the case right now.”

Stein suggested that non-borrowing spouses have a single point of contact to help shepherd them through the process, informing them of the specific documentation they need and answering any questions that come up.

“Hopefully we can get to a point where the rules have been improved, the servicers are committed to implementing the rules, and dare I say that HUD enforces the rules,” he said.

Written by Alex Spanko

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  • >>NRMLA also encourages all non-borrowing spouses to have their names added to their property titles whenever possible

    Oh my God … blows my mind! Adding the non-borrowing Spouse can result in the Notes’s Alienation Clause being executed, enabling the Lender to immediately call the loan due-and-payable. None of us should ever advise adding somebody to Title that isn’t on the Note – unless we’re a Real Estate Attorney … Peter should know better.

  • The article above is very imprecise as to which set of Mortgagee Letters the borrowers are relying on.

    If the HECM related to the Non-Borrowing spouse had its case number assigned after 8/3/2014, then both Mortgagee Letters 2014-7 and 2015-2 may apply to the non-borrowing spouse and it is just a matter of the non-borrowing spouse meeting FHA requirements. If all of the eligible non-borrowing rules to defer payment are met, the lender has no say on whether the deferral will be allowed.

    Yet as to the lender’s permission, just the opposite is true for eligible non-borrowing spouses where the HECM has a case number assigned before 8/4/2014; the lender must elect that the eligible non-borrowing can defer the payment. When the HECM has a case number assigned before 8/4/2014 Mortgagee Letter 2015-15 applies and so Mortgagee Letters 2015-2 and 2014-7 except where in conflict with Mortgagee Letter 2015-15.

    I have had correspondence with a borrower who had a HECM with a case number assigned in 2011. He was nearing death and wanted to ensure that his eligible non-borrowing spouse would be allowed the right to defer the payment on the balance due. The servicer for the lender told the borrower that there was no way that the lender would guaranty that right at any time until the time the decision of the lender was required, even if the non-borrowing spouse met every single requirement immediately following his death.

    Obviously the borrower was upset and wanted to know what he could do about it. When I told him about the lender’s election rights, he asked how he could get a guaranty that the lender will allow his wife to defer the payment on the balance due. Unfortunately I know of no way around the lender election.

    Mortgagee Letter 2015-15 states on Page 4 the following, which applies to all HECMs with a non-borrowing spouse that has a case number assigned before 8/4/2014:

    “Where a deceased borrower is survived by a Non-Borrowing Spouse, a mortgagee may elect to either:

    1. Foreclose in accordance with the contract as endorsed; or
    2. Utilize the MOE Assignment.

    Where a mortgagee elects to consider utilizing the MOE Assignment, the terms and conditions set forth below shall apply.”

    Any ideas on how the borrower can obtain the immediate agreement of the lender on a HECM with a case number assigned in Fiscal 2011 not to foreclosure if his wife is an eligible non-borrowing spouse meeting all qualifications immediately following his death would be greatly appreciated.

  • As we in the industry extoll NBS protection as an additional consumer safeguard of the HECM program, the article above is disturbing.

    It is not apparent from the article if those cases seeking assistance had loans that were originated before or after the Aug 2014 implementation of NBS protection by HUD. HUD subsequently gave servicers the “option” of providing NBS protection under defined circumstances for loans originated prior to Aug 2014, and it would be interesting to know if some of the cited denials fall in that group.

    • REVGUYJIM,

      You state: “It is not apparent from the article if those cases seeking assistance had loans that were originated before or after the Aug 2014 implementation of NBS protection by HUD. HUD subsequently gave servicers the “option” of providing NBS protection under defined circumstances for loans originated prior to Aug 2014….” But is that right?

      First, the issue is the date that the HECM received its case number assignment, not the date of origination (a later date). Second, HUD did not give the option to the servicers but to the mortgagees themselves.

  • This article is very disturbing!

    However, on September 14, 2017, mortgagee letter 2017-17 came out, this clarified a lot pertaining to non-borrowing spouses being on the title. Much was talked about in the letter that the Non-Borrowing Spouse could be on the title, sign as the mortgagee for extra collateral to the loan but NOT being a borrower!

    It seems that it would be imperative that the Non-Borrowing Spouse be on the title to the home and be named as an additional mortgagee as soon as possible after the closing. NOT as a borrower but as an additional Mortgagee only.

    Unless I am interpreting the mortgagee letter wrong and that I have done before, this should give guidance to many Non-Borrowing Spouses out there?

    Please quote me if I am interpreting the mortgagee letter, right or wrong, I would appreciate it!

    John A. Smaldone
    http://www.hanover-financial.com

    • John,

      The Mortgagee Letter you cite is about the increase to the HECM lending limit to $679,650 and is dated 12/7/2017. Also I could not find a Mortgagee Letter dated 9/14/2017.

      A MORTGAGEE is A LENDER. The borrower is the mortgagor, so titling something ended with mortgagee when it comes to a non-borrowing spouse is a huge mistake and could invalidate not only perhaps title but the HECM as well. I encourage you to remove all references in your comment on how title should read when amending title to include a non-borrowing spouse.

      HUD states on Page 7101 of Volume 8 of the Federal Register dated Thursday, January 19, 2017 in HUD’s Summary of its updated 24 CFR Parts 30 and 206 in Subpart B titled “Specific Public Comments” to Part IV titled “Public Comments and HUD’s Response to Public Comments” in the second “HUD Response” found in Item 10 titled “Title of Property Which Is Security for the HECM” the following:

      “While HUD understands the potential issues that
      could arise from shared legal ownership of a property, HUD has determined it is not in a place to dictate to a homeowner or homeowners how to best structure legal ownership to a property. Further, even should HUD be inclined to limit those individuals on title at origination, there is nothing that would prevent the borrower from subsequently adding additional individuals to title. These individuals whether added before or after origination would have certain legal rights as would any other legal owner of a property. Ultimately, how a homeowner or homeowners elect to hold title is within their control.”

      There is nothing wrong with NRMLA advising non-borrowing spouses to be added back to title whenever possible BUT ONLY IN ACCORDANCE WITH THE REAL ESTATE LAW OF THE STATE WHERE THE COLLATERAL TO THE HECM IS LOCATED. ANY QUESTIONS AS TO HOW TITLE SHOULD BE AMENDED TO INCLUDE A NON-BORROWING SPOUSE SHOULD BE ADDRESSED TO A COMPETENT REAL ESTATE ATTORNEY LICENSED IN THE STATE WHERE THE COLLATERAL TO THE HECM IS LOCATED.

      Yet why NRMLA felt it NECESSARY to advise in any way other than what HUD did is unknown.

      NRMLA is not legal counsel nor are you. While I am a licensed real estate broker in California, as to title, I believe only licensed California attorneys should provide that advice even when I am answering California real estate questions here in California. Let us not try to practice beyond our licensed professional expertise. Let licensed attorneys practice real estate law.

    • John,

      I am troubled by your comment.

      Mortgagee Letter 2017-17 announced the increase of the HECM lending limit from $636,150 to $679,650. It was dated December 7, 2017. There is no Mortgagee Letter dated 9/14/2017. Please clarify what Mortgagee Letter you reference.

      Your advice for a non-borrowing spouse to sign title as a “mortgagee” is awful. A mortgagee is a lender. See 24 CFR 206.3 which states: “Mortgagee means original lender under a mortgage and its successors and assigns, as are approved by the Commissioner.”

      The same regulation states: “Mortgagor means each original mortgagor under a HECM mortgage and his heirs, executors, administrators, and assigns.” The non-borrowing spouse is far more mortgagor than mortgagee unless the non-borrowing spouse is the lender on some subsequent secondary debt against the home.

      But in any case, a non-borrowing spouse is not a borrower. In the previously cited regulation the following is stated: “Borrower means a mortgagor who is an original borrower under the HECM
      Loan Agreement and Note. The term does not include successors or assigns of a borrower.”

      As stated in another comment, it is important that we do not act as legal counsel and recommend how title in REAL ESTATE should be held.

  • While NRMLA is free to say what it wants, the statements linked to NRMLA above fail to advise that it is very important as to how title in real estate is held! To protect the interests of the non-borrowing spouse, it is imperative that the non-borrowing seek the advice of legal counsel licensed in the state where the property is located and that such attorney be competent, knowledgeable, and experienced in the real estate law of that state.

    As an over 26 year California licensed active real estate broker, there are several ways that married couples can hold title in real estate. Even though I understand the implications of title, it is important that a qualified attorney handle such advice.

    I will simply quote HUD on this issue as found on Page 7101 of the January 19, 2017 Federal Register Volume 82 No. 8 on Rules and Regulations:

    “HUD Response: While HUD understands the potential issues that
    could arise from shared legal ownership of a property, HUD has determined it is not in a place to dictate to a homeowner or homeowners how to best structure legal ownership to a property. Further, even should HUD be inclined to limit those individuals on title at origination, there is nothing that would prevent the borrower from subsequently adding additional individuals to title. These individuals whether added before or after origination would have certain legal rights as would any other legal owner of a property. Ultimately, how a homeowner or homeowners elect to hold title is within their control.”

    The response was to the following comment also on Page 7101:

    “Comment: Allowing non-borrowing spouses to remain on the title could open the door to claims by other nonborrowing owners. Commenters expressed concerns over whether other co-owners could demand the sale of the property or demand to receive their
    share of the home title. One commenter asked if HUD could limit the ability to remain on title to eligible NBSs only or perhaps only to owners who also reside in the home. Another commenter suggested that HUD should limit the ability of a non-borrower to remain on
    title to spouses, or alternatively, grant a life estate right to the borrower so that the borrower could keep the home.”

    The HUD response can be found in the Summary to proposed regulations under part IV titled, “Public Comments and HUD’s
    Response to Public Comments,” section B of that part titled, “Specific Public Comments,” and item 10, appearing as the response to the second comment of that item.

    In a latter comment in that section the following comment and HUD response is presented:

    “Comment: HUD should clarify that HECM servicers may encourage borrowers on currently outstanding HECMs to add NBSs and heirs to the title when preparing for end-of-life arrangements.

    HUD Response: HUD has determined it is not appropriate to dictate to a homeowner or homeowners how to best structure legal ownership to a property.”

    The other comments in item 10 are also interesting and generally on point.

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