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Could Changes in HUD Rules Bring About An Unintended Consequence of on Reverse Mortgages?

Reverse mortagesThere’s concern that a subtle wording change in the Trump administration’s proposed budget request for the Department of Housing and Urban Development (HUD) could undo some of the protections for the spouse of a borrower who takes out a reverse mortgage and then passes away.

Two U.S. Senators sent a joint letter to Ben Carson, the Secretary of HUD and Mick Mulvaney, the Director of the Office of Management and the Budget.  They expressed their concern that the change in the language could unintentionally increase the chances that a surviving spouse who didn’t sign the mortgage documents, could lose his or her home in a foreclosure.

They sent the letter two months ago to get some clarity on the proposed wording in the budget request. Senator Marco Rubio (R-FL) and Senator Catherine Cortez Masto (D-NV) asked whether the agency was seeking to reverse the previous change in policy.

There’s been no response from HUD about its intent for reverse mortgages, which allow the elderly to use the equity they’ve built up in their homes. That is causing concern because reverse mortgages are seen as crucial in helping an aging population plan for retirement. Before the change in policy two years ago, a surviving spouse who hadn’t signed the mortgage frequently had to pay what was left on the loan in full or risk being evicted in a foreclosure. The two senators say the old policy is 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 specific language in question 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 is in a section of the Act providing the types of reverse mortgages eligible for insurance guarantees from the Federal Housing Administration, a division of HUD.

The revised wording can be read as suggesting that a surviving spouse isn’t necessarily entitled to stay in the home.  However, at the same time, Trump’s budget proposal includes a new line that would give the Secretary of HUD broad discretion to determine if 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,” Senator Cortez Masto said in an emailed statement on 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 extended the protections to surviving spouses after several lawsuits and negative news coverage about spouses being thrown out of their homes after the death of a partner. Some experts say that with home prices increasing again and a growing number of baby boomers reaching retirement age, there will be renewed interest in reverse mortgages, as the elderly look to supplement their living expenses.

Reference: The New York Times (August 8, 2017) “2 Senators Question Effects of a Reverse Mortgage Proposal”

 

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