A Recent Report Found that an Increasing Number of Families are Being Unfairly Targeted for Foreclosure After Inheriting a Reverse Mortgaged Home
Washington, DC - April 30, 2014 - U.S. Senators Barbara Boxer (D-CA) and Charles Schumer (D-NY) today sent a letter to Secretary Shaun Donovan of the U.S. Department of Housing and Urban Development (HUD) asking him to enforce the rules for reverse mortgages to help prevent families from being forced into foreclosure after inheriting a home following the death of a loved one.
Citing the findings of a recent New York Times report, the Senators wrote that “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.”
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 Senators asked Secretary Donovan to take action “to ensure heirs are accurately informed of this option and are not unnecessarily facing foreclosure at the same time they may be mourning the loss of a parent or other family member.”
The Senators’ full letter is below.
April 30, 2014
Honorable Shaun Donovan
U.S. Department of Housing and Urban Development
451 7th Street, SW
Washington, DC 20410
Dear Secretary Donovan:
We were disturbed to read in a New York Times article, “Pitfalls of Reverse Mortgages May Pass to Borrower’s Heirs,” that 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.
As you know, home values declined sharply during the recent financial crisis, and many borrowers, including those with reverse mortgages, found themselves owing more than their properties were worth. Under the U.S. Housing and Urban Development (HUD) Home Equity Conversion Mortgage (HECM) rules, lenders are supposed to offer reverse mortgage borrowers and heirs the option to satisfy a loan by paying 95 percent of the home’s current appraised value. Instead, as the article in the New York Times noted, “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. 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.
Some of the confusion appears to stem from a mortgagee letter HUD issued in 2008 that would have limited lenders’ ability to accept less than the full mortgage balance as payment from family members or heirs. HUD rescinded that letter in 2011 and stated at the time that it would issue a replacement letter, but has yet to do so.
To avoid causing grieving family members additional anxiety during an already difficult time, we urge you to take the following steps:
Issue the promised letter, making clear that HUD’s retraction of the 2008 guidance should be construed as reinstating the preexisting interpretation that a matured reverse mortgage loan can be extinguished by the mortgagor, the mortgagor’s estate, or personal representative by paying 95 percent of the home’s market value.
Develop a letter that servicers can send to a borrower’s family members and heirs that clearly outlines options for settling the loan.
Enforce the existing rule and require that any servicer that fails to offer this option within the required time allow a family member or heir to pay the lower of 95 percent of the home’s value at the time the loan became due or 95 percent of the home’s value at the time the error was corrected.
We urge you to take the steps outlined above and any others necessary to ensure heirs are accurately informed of this option and are not unnecessarily facing foreclosure at the same time they may be mourning the loss of a parent or other family member.
Thank you for your prompt attention to this issue, and I look forward to your response.
Barbara Boxer Charles E. Schumer
United States Senator United States Senator