There is concern that a small wording change in the Trump administration’s proposed budget request for the Department of Housing and Urban Development could undo some of the protections for the spouse of a borrower who takes out a reverse mortgage and later dies.
Advocates for the elderly persuaded federal housing officials two years ago to offer more rights and protections to the spouse of a borrower who takes out a reverse mortgage and later dies.
Now there is concern that a small wording change in the Trump administration’s proposed budget request for the Department of Housing and Urban Development could undo some of those protections — potentially increasing the chances that a surviving spouse who did not sign the mortgage documents could lose a home in a foreclosure.
Two U.S. senators sent a joint letter to Ben Carson, the secretary of HUD and Mick Mulvaney, director of the Office of Management and the Budget two months ago, seeking clarity on the proposed wording in the budget request. The two — Sen. Marco Rubio, R-Fla., and Sen. Catherine Cortez Masto, D-Nev. — asked whether the agency was seeking to reverse the earlier policy change.
The senators have yet to receive a response from the housing agency about its intent for reverse mortgages, investment products that allow the elderly to tap the equity they have built up in their homes. And that is causing some concern.
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“Our sense is it is bad drafting, but when bad drafting goes through, it can lead to bad policy,” said Alys Cohen, a staff lawyer in Washington, D.C., with the National Consumer Law Center. “And you can lose control of things once you have new language.”
The three-decade-old market for reverse mortgages is a niche one — there are about 1 million such loans outstanding.
But reverse mortgages are viewed as crucial pieces in helping an aging population plan for retirement, and new lenders are coming into the market. The loans permit an elderly person to borrow against the equity in his or her home and avoid making any monthly payments until the borrower either dies or sells the house.
Before the change in policy two years ago, a surviving spouse who had not signed the mortgage document often had to pay what was left on the loan in full or risk being evicted in a foreclosure.
In a May 31 letter, the senators referred to the old policy as a “loophole” that had “compounded the stress faced by widows and widowers at a time when they were already grieving the loss of their spouse.”
The language that concerns the senators and advocates for older Americans is a proposed change in the National Housing Act that says, in regard to reverse mortgages, that a mortgagor “shall not include the successors and assigns of the original borrower under a mortgage.”
The phrase appears in a section of the housing act discussing what kinds of reverse mortgages are eligible for insurance guarantees from HUD’s Federal Housing Administration.
The revised wording would seem to suggest that a surviving spouse is not necessarily entitled to stay in the home. At the same time, however, the budget proposal includes a new line that would give the secretary of HUD wide discretion to determine when a loan is payable after the death of the borrower.
“HUD’s proposed changes to reverse mortgages included in the last budget raised concerns that the administration may be seeking to undo hard-fought existing protections,” Cortez Masto said in an emailed statement Tuesday. “I hope the administration can make clear that they’re not looking to push seniors out of their homes after the death of their spouse.”
HUD declined to comment.
Making the wording change all the more perplexing is that the National Reverse Mortgage Lenders Association, the industry’s primary trade group, has not pushed for any regulatory changes over the ability of a surviving spouse to stay in a home after the death of a spouse.
HUD extended the protections to surviving spouses after a series of lawsuits and news coverage about spouses losing their homes after a partner’s death.
Controversy over reverse mortgages is not new. It is an industry that has drawn its fair share of scorn for using Hollywood actors to hawk its loans on late-night television advertisements. Some consumer advocates have complained that the reverse-mortgage business preys on the financially ill-informed, who might be better off selling their homes and banking the cash.
Yet for those over 62 who want to stay in their homes and owe little to nothing on a mortgage, these investment products have some appeal. The loans, which the Federal Housing Administration guarantees against default, are also known as home-equity conversion mortgages.
The market peaked in 2008, when the industry funded 114,923 loans, but it fell off during the financial crisis, according to Reverse Market Insight. The industry has slowly rebounded with 48,732 loans funded in 2016 and 24,000 as of the end of May 2017.
Many predict with home prices rising and more baby boomers reaching retirement age, there will be a revival in this market as the elderly look to supplement their living expenses.