According to a report from National Mortgage News, a hearing in the U.S. District Court for the District of Columbia gained some ground on an issue that has been the subject of several lawsuits, including a suit filed by the AARP against HUD.
The Federal Housing Administration will allow government-insured reverse mortgage lenders to suspend foreclosures for up to 60 days to allow the deceased borrowers’ spouses to remain in the home. According to Carol Federighi, an attorney for HUD, the FHA will cover the costs for this foreclosure suspension.
Lenders will also be allowed to seek FHA approval to halt foreclosures on a case-by-case basis, she told U.S. District Court judge Ellen Huvelle.
Federighi also told the judge that the FHA will soon issue a new policy that addresses this spousal issue for new Home Equity Conversion Mortgages, although the main issue before the court is how to protect non-borrowing spouses who are already facing foreclosure.
HECMs are the most common type of reverse mortgages, and foreclosures on these FHA-guaranteed loans have become a growing issue. During the recession, many seniors took out reverse mortgages to avoid foreclosure.
To get the maximum benefits, younger spouses are often removed from the title for the home, which puts the spouse at risk of foreclosure if the older spouse dies. Because reverse mortgages require borrowers to be at least 62, spouses who are younger than this must also be left off the loan.
The AARP has sued HUD to stop these foreclosures by arguing it is HUD’s duty to protect the spouses.
Judge Huvelle pressed Fegerighi on how HUD intends to deal with non-borrowing spouses facing foreclosure, forcing the attorney to admit the agency has no idea. Huvelle also indicated she is planning to grant class action status to the AARP lawsuit, giving HUD until May 12 to respond to AARP’s motion for certification of the class action lawsuit. It is likely that thousands of widows and widowers are affected by this case.
HUD has also been ordered to provide relief to plaintiffs in a previous case involving non-borrowing spouses in which the court ruled against HUD.
According to experts, the FHA has two real options: require both spouses to sign the title or take the age of the younger spouse into consideration in determining loan proceeds.