HUD’s Intervention in Reverse-Mortgage Case a Step Toward Reform

Mortgage & Real Estate




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A recent effort by housing officials to delay foreclosure on the widow of a reverse-mortgage borrower signals that they are willing to protect consumers in similar situations.

The Department of Housing and Urban Development in response to a request by the widow’s attorney supported postponement of a foreclosure on the home of Ernestine Harris originally scheduled for Dec. 2, according to a recent court filing.

Harris’ attorney asked HUD to recognize her as eligible for “hold election,” which is one form of consumer relief HUD has considered in line with court directives. Plaintiffs who have faced foreclosure after their spouses died because they were unnamed in reverse mortgage documents have sued to protect their rights to their homes.

The original legislation that created HUD’s home equity conversion mortgage program includes protections for spouses’ right to the home, but subsequently some lenders began leaving younger spouses off the title when making the mortgages. This was done to maximize the withdrawal of proceeds, as older borrowers can withdraw more from an HECM and borrowers must be at least 62 to get one.

HUD acknowledged the practice after lenders began engaging in it, and thus must take some responsibility for allowing it to continue, plaintiffs alleged.

Litigation over the issue has led to some unfinished reform efforts on HUD’s part, and plaintiffs’ lawyers suggested recently that HUD has not been approving requests for certain interim, retroactive relief the government agency has proposed. Lawyers for multiple plaintiffs recently cited efforts to foreclose on Harris as one of two examples of this problem in a motion for class certification.

But the subsequent court filing by HUD suggests the government agency is willing to offer relief and wants “to do this thing right,” said Atare Agbamu, the president and chief executive of the advisory firm ThinkReverse LLC.

HUD said in its opposition to the plaintiffs’ renewed motion for class certification that it “has acted favorably on the only request for hold election it has received from a nonborrowing spouse who is not one of the sixplaintiffs” making the request.

The department acknowledged it had received a previous request for relief for Harris from her lender, OneWest. But HUD said that it denied OneWest’s request because the basis for it was insufficient.

“One West’s letter relied solely upon the facts that ‘Mrs. Harris is 65 years old, legally blind and facing foreclosure.’ These facts do not support a request for a regulatory waiver. Mrs. Harris’ subsequent request relied upon a different principle,” HUD said in the filing.

OneWest has said it would stay the foreclosures if HUD would suspend curtailment of interest on the loans, according to court documents.

HUD said it promised that if OneWest agreed to postpone the foreclosure it would not impose any penalties, “including any continued curtailment of debenture interest, for dilatory pursuit of foreclosure solely on the basis of the death of the last surviving HECM mortgagor so long as OneWest continues to comply with all applicable FHA requirements.”

The plaintiffs’ motion also mentioned another OneWest borrower facing foreclosure, Janice Cooper. But HUD said it “has received no request from either the mortgagee for the Cooper HECM or Mrs. Cooper comparable to the one it received from Mrs. Harris.”

The department has finalized protections for similarly situated consumers going forward as a result of the litigation, but has not yet finalized a retroactive measure as directed by the court.

It has promised to eventually do this in the form of a “single mortgagee letter that properly takes all relevant considerations into account, rather than to act on a case-by-case basis or to issue rushed general guidance that would have to be revised in the future.”

HUD in court filings appears to be backing away from one proposed precondition known as the principal limit factor, which would effectively rule out relief for younger spouses, said Agbamu. This could help pave the way for a final mortgagee letter, he said.

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