NRMLA Responds to Senators’ Loan Payoff Concerns

On Wednesday, the New York Times reported that Senators Barbara Boxer (D-CA) and Charles Schumer (D-NY) had submitted a letter to Housing Secretary Shaun Donovan expressing concerns that reverse mortgages servicers are unfairly foreclosing on the heirs of reverse mortgage borrowers. NRMLA immediately reached out to all of the parties involved to resolve the matter as quickly as possible.

The letter was sent in response to the March 26th Times article, “Pitfalls of Reverse Mortgages May Pass to Borrower’s Heirs,” which stated that “reverse mortgage companies are increasingly threatening to foreclose unless heirs pay the mortgages in full” instead of the lesser of the loan balance or 95% of the property’s appraised value.

“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,” the Senators noted.

Some of the confusion stems from Mortgagee Letter 2008-38, which required lenders to accept nothing less than the full mortgage balance as payment from family members or heirs if there was no conveyance of the property. HUD rescinded the letter in 2011 and stated at the time that it would issue further guidance, but has yet to do so.

In the last 48 hours, NRMLA has consulted with HUD, the staffs of Senators Boxer and Schumer and the Servicing Committee, which is comprised of all the major reverse mortgage servicers. In NRMLA President & CEO Peter Bell’s view, the situations about which the Senators are concerned occur as the result of a legal vagary within HUD regulations.

“The implication in the letter from the senators, that’s there’s been some misbehavior, I think is completely wrong,” said Bell. “I think what’s going on here is a complex technical issue that has to do with HUD’s lawyers interpretation of when HUD should accept the 95% payoff. In some cases, people have someone who is on title who is not the borrower. People will get a reverse mortgage and put their kids on title, assuming that when they die the house won’t have to go through probate. But if the title hasn’t been through a legal transfer, then in HUD’s view it isn’t a sale.”

To rectify the situation, Senators Boxer and Schumer recommended that Secretary Donovan:

  • Issue a mortgagee letter that clarifies a reverse mortgage obligation can be satisfied by the borrower or borrower’s estate by paying 95% of the home’s market value
  • Develop a letter for servicers to send to borrowers’ families and heirs that clearly outlines their options for settling the loan
  • Enforce the existing rule and take any other steps 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.

NRMLA is monitoring the situation and will report any new developments to the membership.