HUD Reverse Mortgage

On August 28, 2014, the federal court granted in part and denied in part Plaintiffs’ motion for summary judgment. The court remanded to HUD to effectuate its obligation not to require lenders to foreclose on surviving spouses, and to enable lenders to assign mortgages to HUD that have reached 98 percent of the maximum claim amount. However, it let stand HUD’s proposed criteria for accepting assignment of loans that have not reached 98 percent of the maximum claim amount.

On August 4, 2014, HUD filed a brief in which it confirmed that plaintiffs’ lenders no longer are required to foreclose on them, because federal law forbids HUD from requiring lenders to foreclose on surviving spouses as a condition of making an insurance claim. The lender can simply decline to foreclose, and may assign the mortgage to HUD when the mortgage balance reaches 98 percent of the maximum claim amount. However, HUD has yet to make this relief available to other surviving spouses.

On April 25, 2014, HUD issued Mortgagee Letter 2014-07. Effective August 4, 2014, newly issued reverse mortgages will not be due and payable as long as a non-borrowing spouse continues to reside in the property and meets the other requirements of the program.

On April 21, 2014, HUD issued a directive allowing lenders to request a 60-day extension of foreclosure proceedings where a surviving spouse of a reverse mortgage borrower is residing in the property.

On February 27, 2014, four surviving spouse plaintiffs filed a proposed class action to ensure that the relief plaintiffs obtained in the Bennett case will immediately be extended to all surviving spouses of HECM reverse mortgage borrowers. Click here to read the complaint.

On March 8, 2011, M&S and the AARP Foundation filed suit against the U.S. Department of Housing and Urban Development (HUD). Plaintiffs alleged that hundreds – and possibly thousands – of seniors whose spouses obtained HUD-insured reverse mortgages on their homes were facing foreclosure due to improper changes in HUD’s rules governing reverse mortgages. These changes conflicted with the authorizing legislation at the time that the senior homeowners took out their loans. In addition, the suit claims that HUD completely ignored the requirements of the Administrative Procedures Act, which requires an opportunity for public comment and debate prior to changing such rules.

Reverse mortgages allow property owners who have significant equity in their homes the option of receiving a loan or monthly payment for the remainder of their life. Reverse mortgages are secured by the property and is payable only upon their death or if they no longer occupy the property.

Congress passed legislation creating the Home Equity Conversion Mortgage (HECM) program, providing insurance and establishing ground rules for borrowers and lenders. Loans through the HECM program have always been treated as “non-recourse loans,” meaning that even if the property value diminished after the loan was issued, the borrower would never owe more than the current market value of the property. In 2008 HUD changed this understanding, making spouses and heirs pay the full mortgage balance if they wanted to retain the property, even if this amount was greater than the value of the property. HUD enforced this change retroactively, applying it even to existing mortgage agreements that reflected HUD’s previous interpretation of HECM mortgages as non-recourse loans.

On March 31, 2011, plaintiffs filed a motion for preliminary injunction on March 31, 2011. On April 5, 2011, in response to this suit, HUD issued Mortgagee Letter 2011-16, withdrawing the improper changes plaintiffs detailed in their complaint, and HUD also directed lenders to halt pending foreclosure actions against the plaintiffs.

On September 30, 2013, the District Court granted Plaintiffs’ motion for summary judgment, ruling that HUD had violated the HECM statute, which requires that a reverse mortgage obligation be deferred until the death of the homeowner and his or her spouse. This ruling represents a landmark victory for seniors. HUD has dismissed its appeal of this ruling.


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