Reverse Mortgage Policy Leaves Widows, Widowers Homeless
Karen Hunziker was 60 when her husband, Charles, secured a reverse mortgage on their Pollock Pines, Californina, home. At the time, Hunziker was advised by the mortgage broker to remove her name from the title to qualify for the loan. "We were both very concerned that I could be giving up my property rights, but the salesperson assured us I would be protected until 62 years old, when I would be put on the title," said Hunziker.
However when she turned 62, Hunziker and her husband were informed by an attorney that the only way she could be on the title would be to refinance into a new reverse mortgage. She was subsequently told the couple would need to contribute $60,000 to get a new loan. "That was impossible because of the first reverse mortgage," said Hunziker, who works as an artist craftswoman.
Although the couple had lived in the home for 19 years, Hunziker received a foreclosure warning letter from Financial Freedom ten days after her husband passed away in May 2014. That's because Hunziker is a non-borrowing spouse.
HUD Changes the Rules
"Married couples were not informed that the consequence of taking the non-borrowing spouse off the loan could be that HUD [the Department of Housing and Urban Development] would allow the servicer to later foreclose on them," said Kevin Stein, associate director at the California Reinvestment Coalition. "We believe HUD allowing these foreclosures is both against the statute authorizing this program and contrary to how these loans are advertised as safe financial products to provide extra income while remaining in your home."
Although it was legal for brokers to make the mortgage only to Charles Hunziker, it wasn't accurate to say that his wife, Karen, could be added to the mortgage when she turned 62 or that she wouldn't face foreclosure if the older spouse passed away.
"HUD knew that reverse mortgages were being originated to only one spouse yet still allowed foreclosures on the surviving spouses, which is why they got sued," Stein said. "These foreclosures are contrary to how these products were marketed and to the statute authorizing these products."
HUD was ordered by a federal judge to revise its policies to address this problem after AARP and the Mehri & Skalet law firm sued. It did so in in January, but even HUD's new reverse mortgage policy won't protect Hunziker. "After a borrowing spouse passes away, the reverse mortgage servicer could assign the loan to HUD however even if the servicer chose this option at their discretion, the surviving spouse would then need to make a large, lump-sum payment to meet the principal limit test, which is something that most surviving spouses are unable to do," said Stein.
Another problem with the new HUD policy is its restrictions. "The policy is dependent on servicer discretion, so if the servicer doesn't want to provide relief, they don't have to," Stein said.