The U.S. Department of Housing and Urban Development updated reverse mortgage regulations in 2014 to make it easier for non-borrowing spouses to stay in their homes after the death of the borrower, but problems and confusion over these loans continue.
Just last month, a Florida court superseded federal law and ruled in favor of a reverse mortgage lender and not a widow whose Home Equity Conversion Mortgage-borrowing spouse had passed away, concluding that she must vacate the home.
And last year, the issue received the attention of two U.S. Senators — Republican Marco Rubio and Democrat Catherine Cortez Masto — who sent a letter to HUD Secretary Ben Carson asking for more information about an apparent change to the definition of “mortgagor” under National Housing Act.
On the ground level, originators are frequently left with the task of making sure non-borrowing spouses understand their rights within the loan. To begin the process, many rely on HUD’s protocol for these situations.
Melinda Hipp, a branch manager with Open Mortgage, LLC in San Antonio, Texas, said HUD’s procedure is thorough, requiring non-borrowing spouses to complete the loan counseling program and sign the counseling certificate with the borrower. She added that her company, Open Mortgage, does more extensive training internally on how to work with a non-borrowing spouse.
“You want them to understand the paperwork, but you can’t guarantee that they will pay attention,” she said, noting instances where non-borrowing spouses were not concerned with the details.
Harlan Accola, national director for reverse mortgages at Madison, Wis.-based Fairway Independent Mortgage Corporation, said he also does a great deal of pre-loan counseling with non-borrowing spouses and urges the write-up of proper legal documents detailing what happens after the borrower dies.
“So many people do not have the proper legal documents done,” he said. “They don’t do it because it’s expensive, but it’s less expensive than probate.”
He said after origination he proactively keeps in touch to later refinance and add the non-borrowing spouse to the loan as soon as they reach 62; many non-borrowing spouses are too young to qualify for a reverse mortgage at the time of origination.
Laurie MacNaughton, a reverse mortgage specialist with Atlantic Coast Mortgage, LLC in the Washington, D.C. area, called the 2014 changes a “rude awakening,” as many originators thought the problems would be over. After struggling to negotiate the terms with the servicer herself for her first post-2014 clients, she began to send non-borrowing spouses to an attorney. MacNaughton makes these potential difficulties known to the client at the beginning of the loan.
“It’s tricky,” she said. “Just because [the loan was originated] after 2014 doesn’t mean they are a shoe-in. I tell them, ‘If your spouse predeceases you, make me your first phone call,’ and I immediately refer them to the attorney I’ve trained specifically to deal with this.”
All originators interviewed said the loan servicer needs to be contacted as soon as possible after the death of the borrower, either by the non-borrowing spouse, an attorney, or another representative.
They also noted that non-borrowing spouses need to understand that they can remain in the home only if the borrowing spouse dies, not if the borrower is moved to a nursing home or care facility.
“Communication is the solver of all problems, and it’s especially true in the reverse mortgage world,” Hipp said.
Written by Maggie Callahan