The Young & the Restless

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HUD to Make Allowances for Co-Borrowers Under 62

Reverse Mortgage News
In recent years it has been a black eye for both HUD and the Reverse Mortgage industry. Non-Borrowing spouses. More specifically non-borrowing spouses who are displaced or evicted from the home when their older mate and sole reverse mortgage borrower passes away. This ugly scenario reflects the need to consider the risks posed to younger spouses under 62 who are not named on the HECM loan and the reputational risk to both lenders and the industry at large.

During a January 16th meeting of the National Reverse Mortgage Lenders Association’s Executive Committee, Deputy Assistant Secretary Charles Coulter said to expect a mortgagee letter in the coming weeks regarding non-borrowing spouses. Coulter said “The first ML will essentially require that in the case of a non-borrower spouse, the age of the younger member of the couple will be utilized to determine the appropriate PLF [principal limit factor]. HUD will be modifying the PLF tables to cover ages below 62 for this purpose.”

17 comments

Peggy Loar February 10, 2014 at 5:58 am

I definitely see this a a positive for borrowers who understand that they will get a lowered amount when one spouse is under 62. As a Loan Officer who only does Reverse Mortgages, I see far too many couples who need to do a Reverse Mortgage because they are having a difficult time making ends meet on their current income but can’t because one of them isn’t old enough. I am encouraged (and hopeful) that this rule does include both spouses on the loan so the younger wouldn’t be required to pay off the mortgage should the older pass away.

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Ben Newell February 10, 2014 at 6:27 am

Since HUD will be issuing a new Mortgagee Letter regarding calculating the PLF on a spouse who is younger than 62 does this mean the younger of the two CAN or CANNOT be on title & the Reverse Loan?

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Nancy Pedone February 10, 2014 at 6:30 am

This would seem like an adequate and obvious solution-Historically not what we have witnessed from HUD. Could this administration be implementing rational, sound solutions? Fingers crossed to stay the course. Are we opening the door to a younger borrower is the question?- Are we changing the face of the HECM borrower and expanding into unknown territory? – Migrating away from our expected client creating a whole new demand- Interesting future…. Stay tuned…..

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JIm Warns February 10, 2014 at 6:49 am

Accommodation of NBS by HUD is a positive for the industry, and will have a minimal impact on originations. A remaining question – perhaps to be addressed in the ML – is handling of NBS where the relationship is the result of a marriage after the HECM has closed.

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Rick February 10, 2014 at 7:14 am

A definite positive

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Bill Danner February 10, 2014 at 8:22 am

Where do you draw the age line? Trophy wives are becoming more in vogue where we have an early 70’s man and a late 40’s partner. Common sense must be used to underwrite individual cases. If the man has ample insurance and savings in order to payoff the loan if the widow wants to stay, do the deal, otherwise look for a new client or have a pre-nuptial agreement that states the widow must exit property upon sale of said property.

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Erik Lilyquist February 10, 2014 at 8:48 am

I agree that if this happens, HUD finally is going to be implementing something that can help, rather than hinder. I also agree with Peggy’s post, as a Reverse Only LO, I have seen to many w/ the need not be able to get this because of age. This should help many, or at least many who have lots of equity.

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Skip Koehler February 10, 2014 at 8:52 am

This raises a question that will most likely come up.
If it is a valid computation with a reverse mortgage for a lower age that will still make the loan fit the requirement for meeting the insurance fund needs, why not just offer the loan to everyone at the lower age and not allow any non borrowing spouses???

Why do you have to be married to an old geiser to get a reverse?

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David Sutton February 10, 2014 at 10:00 am

This should have happened a long time ago. I think it will make a bid confidence level difference in our customers.

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James E. Veale, CPA, MBT February 10, 2014 at 4:57 pm

Why would the HUD Secretary issue a Mortgagee Letter dealing with non-borrowing spouses when there is an appellate case pending on that issue?

The Reverse Mortgage Stabilization Act of 2013 does not seem to permit the HUD Secretary to overrule HECM law or regulation at will. It requires the following: “establish, by notice or mortgagee letter, any additional or alternative requirements that the Secretary, in the Secretary’s discretion, determines are necessary to improve the fiscal safety and soundness of the program authorized by this section, which requirements shall take effect upon issuance.” [PL 113-29, 12 USC 1715z-20(h)(3)]

How does the proposed Mortgagee Letter “improve the fiscal safety and soundness” of the HECM portion of the MMI Fund if the position HUD has historically taken about non-borrowing spouses is unchanged for litigation purposes? It is the very best position possible for the MMI Fund, i.e., refuse to recognize the applicability of the spouse displacement rule when it comes to non-borrowing spouses. Is the Secretary saying that HUD has a responsibility not to displace non-borrowing spouses in the event that the non-borrowing spouse survives the demise of the borrowing spouse, particularly if 1) the non-borrowing spouse was married to the borrowing spouse and underage at the time that the HECM closed and 2) the HECM is active at the time of the demise of the borrowing spouse?

The information released to date about the proposed Mortgagee Letter does not address pre-nuptial agreements, separate property issues, legal separation property agreements where one spouse is not permitted by decree to live in the home, and similar issues. Perhaps the HUD Secretary will say that if by agreement, law, or other means an eligible borrowing spouse cannot include his/her spouse as a borrower, then that otherwise eligible spouse cannot obtain a HECM.

Mr. Warns also brings up the very valid point about marriages occurring after the HECM is closed. Then there is the issue about HECMs closed before the effective date of the proposed Mortgagee Letter.

Issuing Mortgagee Letters in a piecemeal fashion, if that is what HUD is intending, seems as if it would ultimately lead to more confusion on an already confusing issue. I am not sure that the Congress who passed the bill and the President who signed it into law had the result being proposed in mind. However, the fix is needed but it is only a partial answer to a very difficult and perhaps significant problem when one brings in the point Mr. Warns presents.

(The views expressed are not necessarily those of RMS or its affiliates.)

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Atare Agbamu February 10, 2014 at 7:09 pm

Undoubtedly, this is an encouraging development in the NBS issue. And I commend HUD for adopting one of my ideas for solving the problem, even though I’ve been its chief critic on this issue over the last five years.

Shannon, as always, you are a master of your game. Keep up the great job!

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tom mastromatto February 11, 2014 at 4:47 am

Hopefully its not an Advertising Nightmare

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The_Cynic February 15, 2014 at 12:28 pm

Tom,

It is hard to believe that any resolution of this matter will not be a nightmare for HUD. It is our responsibility to make sure it is not a nightmare for us.

You and all the rest of us need to get out in front of this issue and not sit idly and passively back just sort of hoping fate will somehow favorably intervene. Of course, that is the swan song of most optimists, i.e., hide the head in the sand hoping the best is going on around them.

As a realist, I strongly believe in being pragmatically proactive where being proactive can make a real difference. This is one of those occasions and in that regard, consider me an opportunist.

So my advice to you is to rise up and let seniors know we support the law which states no displacement of any surviving spouse who was or was not a HECM borrower no matter when the HECM was originated or the marriage transpired. I, for one, believe that is exactly what the law states as do many (but not the majority of the HUD decision makers) at HUD.

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Ed Dumas February 15, 2014 at 6:58 am

I just wonder how long it will take before a discrimination suit is filed. If one spouse below 62 is allowed to do a reverse mortgage using a modified calculation table, why should the older spouse not be able to do a reverse mortgage at that younger than age 62 as well? If the direction of the reverse mortgage industry is to use the HECM as a financial planning tool then I think the age should be lowered across the board to maybe 50-55. HUD is doing everything it can to shrink our market just maybe they can do something to grow it.

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The_Cynic February 17, 2014 at 11:05 am

Ed,

What in the world does your first sentence mean?

Your second sentence is, well, humorous. First, how is it that our industry is using HECMs as a financial tool? What we would like to see happen is the financial community (not our own) adopt HECMs as a first tier financial product, alternative, and option in the initial stages of a retirement plan sometimes even before the decumulation stage begins.

Second, your idea that HUD somehow and in some way can do whatever they want is ludicrous.

As to your last statement, it is detrimental and irresponsible. It lacks the understanding that we almost lost the HECM program due to the greed of those who only originated fixed rate Standards both as to its foul affects on the MMI Fund and more horrendously, the seniors we supposedly serve.

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Ed Dumas February 22, 2014 at 6:07 am

Dear Mr Cynic, as you call yourself, if one of the problems in our industry we are trying to address is that seniors have not properly planned for retirement then why should the age requirement be 62. Many FP’s say that is later than is ideal. Most retirement communities use the age 55 and over as the starting point which allows them to regulate occupancy yet we cannot offer them a reverse mortgage until 62. Based on these irrefutable facts I don’t think it is irresponsible to suggest a lower age for the HECM. Thank you for commenting on my comments and formulating your opinion about them. I am however fully aware of the changes that have taken place in our industry and the reasons for them.

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The_Cynic February 24, 2014 at 1:12 pm

Ed,

(I am neither your dear nor “Mr.” Cynic. In the realm of HECMs, I am just The_Cynic.)

Your reply is the substance of your reasoning, a concept older than most Baby Boomers and some anecdotes?

Per Wikipedia, “Youngtown, Arizona, established in 1954, was the first age-restricted community.” That kind of reasoning is older than arguing about 1) a great need for battleships in our Navy, 2) not going to all volunteer military, 3) Alaska and Hawaii not being admitted as US states, and 4) the need to pass the bill which instituted Medicare. My great grandfather who was born BEFORE the Civil War was still alive in 1954!

So as to 55+ communities being a reasonable basis to lower the minimum age to get a HECM, that reasoning is as antiquated as Beatniks.

As to anecdotes, do your financial planners (or do you for that matter) understand that there has never been a time that US taxpayers have not underwritten the HECM program. All of its operating, general, and administrative costs are not paid out of MIP but through the HUD annual budget.

In nothing you have presented, have you stated that PLFs will have to be lowered for those younger than 62. Do these planners you mention know how low the PLFs would have to be accommodate those under 62 in a fiscally responsible manner?

You still have not explained what you meant in your first comment, when you wrote: “…why should the older spouse not be able to do a reverse mortgage at that younger than age 62 as well?”

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