• Let me start by saying I empathize with the borrower’s sad position. However a reverse mortgage is much like any other annuity. It is based on the life expectancy of the annuitant. The simple truth of the matter is that the amount received each month is directly dependent on the life expectancy of the annuitant. The borrowers have a choice on who the annuitant is. If they select just the husband, then the amount received is based on his life expectancy, and terminates on his death. If they choose both husband and wife it is based on the life expectancy of the one with the longest lifetime. In most cases a women is younger that the man and has a longer expected lifetime. The amount received each month is larger with a shorter expected life. So somewhere lost in all of the paperwork, the applicants were asked who they were insuring. If they selected just the husband they got a larger monthly payment. If both husband and wife they got a smaller payment, since it has to last longer. This is no different that the decision couples make when they start to draw down on a company pension. They are given a choice to have it paid on just the husband’s life expectancy, or bother husband and wife. The options are the same: a higher monthly benefit based on the husbands expected shorter life, or a smaller monthly payment based on the wife’s longer expected life. I cover the reverse mortgage in great detail in my book “Let’s Buy a House.”
The federal Department of Housing and Urban Development has a birthday gift for 91-year-old widow Jeanette Ogle that should cause any senior to think twice before signing up for a government-insured reverse mortgage.
Later this month, on Ogle’s 92nd birthday, 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 included on the reverse mortgage documents prepared by a loan broker. This was despite the fact that both her husband’s and her names were clearly listed as co-borrowers in the documents for the mortgage being refinanced, Ogle says, and the longtime married couple wanted no change in that status.
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. “I signed every piece of paper, we followed the rules.” 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.
“I just don’t understand why they are doing this to me,” she said in an interview. “I don’t want to lose my home.”
HUD’s reverse mortgage program, run through the Federal Housing Administration (FHA), has been big business. Promoted on TV by pitchmen such as Hollywood’s Robert Wagner and former Sen. Fred Thompson, there were 582,000 loans outstanding nationwide as of November 2011, according to the Consumer Financial Protection Bureau, which issued a critical evaluation of the program last year.
Reverse mortgages are restricted to seniors 62 years 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 any of the money 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 clear 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.
Jean Constantine-Davis, AARP’s senior attorney on the surviving spouse suit, called Ogle’s circumstances “pretty horrible,” and said HUD’s “current regulation has been devastating on surviving spouses.” AARP’s suit alleged that there are hundreds of elderly victims of the policy.
Ogle’s son, Robert, has asked the Arizona state attorney general’s office to intervene and investigate how his mother’s name was left off the mortgage. But in the meantime, the clock is ticking toward Jeanette Ogle’s foreclosure. And her 92nd birthday.
Ken Harney’s email address is firstname.lastname@example.org.