Two Senate Democrats are urging the Department of Housing and Urban Development to crack down on reverse mortgage servicers for what they say are abuses. But the head of an industry group says the problem is most likely not with lenders and servicers, but with a vagary of the law
Two Senate Democrats are urging the Department of Housing and Urban Development to crack down on reverse mortgage servicers for what they say are abuses. But the head of an industry group says the problem is most likely not with lenders and servicers, but with a vagary of the law.
Senators Barbara Boxer (D-Calif.) and Charles Schumer (D-N.Y.) sent a letter today to HUD Secretary Shaun Donovan asking him to enforce the rules for reverse mortgages. Citing a recent New York Times report, Boxer and Schumer said some reverse lenders were unfairly foreclosing on families who inherited homes following the death of a loved one.
“(An) increasing number of heirs are facing foreclosure on their homes after receiving inaccurate and confusing information on their options following a reverse mortgage borrower’s death,” Boxer and Schumer wrote. “When home values precipitously declined in the wake of the recent financial crisis, many families ended up owing more on their mortgage than their properties were worth. Under HUD rules, reverse mortgage borrowers or their heirs are supposed to be able to satisfy their loans in such cases by paying 95 percent of the home’s current value. Instead, as the Times reported, ‘reverse mortgage companies are increasingly threatening to foreclose unless heirs pay the mortgages in full.’
“The failure on the part of the mortgage companies to offer the option of satisfying the loan by paying ninety-five percent of the home’s appraised value unfairly penalizes a borrower’s family members and heirs, who are unable to obtain refinancing to pay off the loan,” they wrote. “Instead of keeping the home in the family, they could end up either facing foreclosure or being forced to sell the property to strangers, who still are allowed to purchase the property at ninety-five percent of value.”
But Peter Bell, president and CEO of the National Reverse Mortgage Lenders Association, said lenders had nothing to gain from refusing to take the 95% payoff, since reverse mortgages are insured by the Federal Housing Administration.
“I’m a little bit puzzled by the whole situation, because there seems to be some indication that lenders are doing something wrong or don’t want to accept the 95%,” Bell told MPA. “That doesn’t make any sense. Their best execution is to accept the 95% and file a claim with the FHA for the balance.”
In Bell’s view, the situations about which Boxer and Schumer are concerned occur as the result of a legal vagary within HUD regulations.
“I think what’s going on here is a complex technical issue that has to do with HUD lawyers interpretation of when HUD would accept the 95% payoff,” Bell said. “In some cases, people have someone who is on title who is not the borrower. People will get a reverse mortgage and put their kids on title, assuming that when they die the house won’t have to go through probate. But if (the title) hasn’t been through a legal transfer, then in HUD’s view it isn’t a sale.
“The implication in the letter from the senators, that’s there’s been some misbehavior, I think is completely wrong,” Bell said. “It’s cases where the heirs that want to pay off the loan, but the property’s not going through a sale – in the legal definition of the term sale – because they’re already on title. In that case, until HUD instructs otherwise, the lenders cannot accept the 95% payoff in that situation.”
Bell said he couldn’t see a situation in which there would be an advantage for reverse lenders in wrongfully forcing heirs into foreclosure.
“There would be no reason for the loan servicer to act that way arbitrarily,” he said. “There’s nothing in it, there’s no gain. Their best execution would be to dispose of the property as quickly as possible, accept the 95% payoff and file a claim for the balance.”
Senators Barbara Boxer (D-Calif.) and Charles Schumer (D-N.Y.) sent a letter today to HUD Secretary Shaun Donovan asking him to enforce the rules for reverse mortgages. Citing a recent New York Times report, Boxer and Schumer said some reverse lenders were unfairly foreclosing on families who inherited homes following the death of a loved one.
“(An) increasing number of heirs are facing foreclosure on their homes after receiving inaccurate and confusing information on their options following a reverse mortgage borrower’s death,” Boxer and Schumer wrote. “When home values precipitously declined in the wake of the recent financial crisis, many families ended up owing more on their mortgage than their properties were worth. Under HUD rules, reverse mortgage borrowers or their heirs are supposed to be able to satisfy their loans in such cases by paying 95 percent of the home’s current value. Instead, as the Times reported, ‘reverse mortgage companies are increasingly threatening to foreclose unless heirs pay the mortgages in full.’
“The failure on the part of the mortgage companies to offer the option of satisfying the loan by paying ninety-five percent of the home’s appraised value unfairly penalizes a borrower’s family members and heirs, who are unable to obtain refinancing to pay off the loan,” they wrote. “Instead of keeping the home in the family, they could end up either facing foreclosure or being forced to sell the property to strangers, who still are allowed to purchase the property at ninety-five percent of value.”
But Peter Bell, president and CEO of the National Reverse Mortgage Lenders Association, said lenders had nothing to gain from refusing to take the 95% payoff, since reverse mortgages are insured by the Federal Housing Administration.
“I’m a little bit puzzled by the whole situation, because there seems to be some indication that lenders are doing something wrong or don’t want to accept the 95%,” Bell told MPA. “That doesn’t make any sense. Their best execution is to accept the 95% and file a claim with the FHA for the balance.”
In Bell’s view, the situations about which Boxer and Schumer are concerned occur as the result of a legal vagary within HUD regulations.
“I think what’s going on here is a complex technical issue that has to do with HUD lawyers interpretation of when HUD would accept the 95% payoff,” Bell said. “In some cases, people have someone who is on title who is not the borrower. People will get a reverse mortgage and put their kids on title, assuming that when they die the house won’t have to go through probate. But if (the title) hasn’t been through a legal transfer, then in HUD’s view it isn’t a sale.
“The implication in the letter from the senators, that’s there’s been some misbehavior, I think is completely wrong,” Bell said. “It’s cases where the heirs that want to pay off the loan, but the property’s not going through a sale – in the legal definition of the term sale – because they’re already on title. In that case, until HUD instructs otherwise, the lenders cannot accept the 95% payoff in that situation.”
Bell said he couldn’t see a situation in which there would be an advantage for reverse lenders in wrongfully forcing heirs into foreclosure.
“There would be no reason for the loan servicer to act that way arbitrarily,” he said. “There’s nothing in it, there’s no gain. Their best execution would be to dispose of the property as quickly as possible, accept the 95% payoff and file a claim for the balance.”
