The U.S. Department of Housing and Urban Development (HUD) has rescinded a rule issued last year that was intended to keep at least some spouses of reverse mortgage holders from being forced out of their homes when the mortgage holder dies. Instead, spouses who were not listed on the reverse mortgage will have more time before the foreclosure process begins.
A reverse mortgage allows homeowners to use the equity in their home to take out a loan, but borrowers must be 62 years or older to qualify for this type of mortgage. Up till now, if one spouse was under age 62, the younger spouse had to be left off the loan in order for the couple to qualify for a reverse mortgage. Some lenders have actually encouraged couples to put only the older spouse on the mortgage because the couple could borrow more money that way.
But couples often did this without realizing the potentially catastrophic implications. If only one spouse’s name was on the mortgage and that spouse died, the surviving spouse would be required to either repay the loan in full or face eviction.
In 2012, AARP sued the Department of Housing and Urban Development (HUD) on behalf of the surviving spouses of individuals who took out Home Equity Conversion Mortgage (HECM), which are the most widely available reverse mortgage and are administered by HUD. The spouses in the suit could not sell and repay their loans because, due to the housing downturn, the homes were worth less than the balance due on the reverse mortgage.
In a decision issued September 30, 2013, the U.S. District Court for the District of Columbia agreed with AARP and told HUD to find a way to shield surviving spouses from foreclosure and eviction.
HUD then developed a new rule that took effect August 4, 2014, and that better protected at least some surviving spouses. But the rule left many spouses out, and HUD apparently heard this from those who commented on the new rule. In response, HUD scrapped the rule and instead is now giving HECM lenders a 60-day time extension before they must take legal action to begin the foreclosure process.
For more on on the change from Reverse Mortgage Daily, click here.
For HUD’s notice to lenders announcing the change, click here.
For more about reverse mortgages, click here.