Caught in a reverse mortgage nightmare
On Jeanette Ogle's 92nd birthday this month, her home in Lake Havasu City, Ariz., is scheduled for foreclosure — not because she did something wrong. Instead, she is expected to lose her house because during a refinancing in 2007, only her husband's name was on the reverse mortgage documents prepared by a loan broker. This was despite the fact that both her husband's and her names were listed as co-borrowers in the documents for the mortgage being refinanced, Ogle says, and the couple wanted no change.
But under a controversial policy that is drawing national scrutiny and at least one major lawsuit, HUD — the agency that runs the reverse mortgage program — now insists that when a spouse dies, and the surviving spouse's name is not on the loan documents, the full mortgage balance becomes due and payable. If a relative or the surviving spouse cannot purchase the house and pay off the debt, the loan may be subject to a foreclosure sale.
Ogle, whose husband, John, died in 2010, says she cannot imagine why she is facing foreclosure. "We did everything we were supposed to do," she says. Jeanette and John assumed that the loan they initially took out in 2004 would allow them to do what advertisements for reverse mortgages consistently promise: stay in their home indefinitely, with some extra money for living expenses. But it's not turning out that way.
HUD's reverse mortgage program, run through the Federal Housing Administration, has been big business. There were 582,000 loans outstanding nationwide as of November 2011, according to the Consumer Financial Protection Bureau. Reverse mortgages are restricted to seniors 62 or older. The program allows homeowners to tap into equity and pull out money for use in their retirement years. As long as they pay their property taxes and hazard insurance, generally they don't have to repay until they move out, die or sell the house.
The policy change on surviving spouses that has snagged Jeanette Ogle was not adopted until late 2008, more than a year after the Ogles' refinancing. That change has been challenged in a federal lawsuit filed by AARP, the seniors advocacy group. On behalf of two widows and one widower — Ogle was not a plaintiff — who were threatened with foreclosure, AARP charged that HUD disregarded statutory language that allows surviving spouses to remain in their homes even if their name is not on the documents. In an appellate court ruling last month, U.S. Circuit Judge Laurence H. Silberman said that the court was "somewhat puzzled as to how HUD can justify a regulation that seems contrary to the governing statute."
HUD had no comment on that ruling, which sent the case back to a lower court, and refused to discuss Jeanette Ogle's pending foreclosure. So did Ogle's loan servicer, Reverse Mortgage Solutions Inc. of Spring, Texas, which initiated the foreclosure action. Fannie Mae, the federally regulated mortgage investor that owns Ogle's loan, said the foreclosure would have to proceed because the mortgage is insured by FHA and that agency's rules effectively require it, given the absence of Ogle's name on the documents.
Andrew Wilson, a Fannie Mae spokesman, says the company has a document purportedly signed by the Ogles acknowledging that their refinanced mortgage lists only John Ogle as the borrower. Jeanette Ogle says she has no recollection of signing anything of the sort. "Why would we?" she asked in an interview. Wilson says that whatever the facts, Fannie Mae is "sympathetic" toward Ogle's plight, and will seek to delay any post-foreclosure eviction.