Tuesday, July 29, 2014

Reverse Mortgages & Protection for Non-Borrowing Spouse

As we reported previously, Congress passed the "Reverse Mortgage Stablization Act" in August of 2013.  In both state and federal legislatures, a new law's title may over-promise and under-deliver. With respect to reverse mortgages, Public 113-29 gave authority to the Secretary of Housing and Urban Development (HUD) to establish, by "notice or mortgagee letter, or any alternative requirements" deemed ncessary "to improve the fiscal safety  and soundness of the program," and the latest in a series of HUD requirements takes place, as detailed below, on August 1.


From a consumer perspective, one concern has been reported attempts by mortgage companies to "foreclose" on mortgages where the "borrowing spouse" has died but his or her "non-borrowing, surviving spouse" was still in the home.  Other concerns have focused on "defaults" triggered by failure of a borrower to pay real estate taxes or utilities, thus suggesting continuing  vulnerability of the elderly borrower to financial insolvency despite receiving cash from the reverse mortgage.  Taking out a reverse mortgage without careful planning for necessary home-related payments means the borrower can lose the equity in the home, equity that could have been put to better use by selling the home. As reported here, suits have challenged application of payment due status in such fact patterns. 

In June, the Department used its "Mortgagee Letter" authority to issue its latest in guidelines intended to better protect prospective borrowers of the risks of reverse morgages, including requirement that the mortgage companies make clear to borrowers the following:

  • FHA insures fixed interest rate mortgages, as well as annual and monthly adjustable interest rate mortgages;
  • The borrower has the ability to change the method of payment under the reverse mortgage ARM products at any time provided funds are available;
  • Fixed interest rate mortgages are limited to the Single Disbursement Lump Sum payment option where there is a one-time draw at loan closing and no future draws post loan closing;
  • Adjustable interest rate mortgages provide for five, flexible payment options, and allow future draws;
  • The amount of funds available to the mortgagor is currently determined by the age of the youngest mortgagor, and
  • The disbursement of mortgage proceeds during the first twelve-month disbursement period is subject to an initial disbursement limit as determined by requirements set by the Secretary.

In April, the Department issued "Mortgagee Letter 2014-07" to establish, effective August 1, that "the due and payable status will be deferred for as long as a Non-Borrowing Spouse continues to meet all the qualifying attributes...."  The nonborrowing spouse has 90 days after the death of the borrowing spouse to "establish legal ownership" or other legal right to remain in the home. 

https://lawprofessors.typepad.com/elder_law/2014/07/reverse-mortgages-protection-for-non-borrowing-spouse.html

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