When a company like Bank of America causes a problem or harms individuals, resulting in a loss of equity, they typically get in trouble. If General Motors Company (GMC) releases a truck with faulty brakes, whether those brakes were farmed out to a third-party or not, GMC recalls the vehicle and gets in front of the issue. If these cases typically run true, then why hasn’t the U.S. Department of Housing & Urban Development (HUD) come under fire for harming elderly individuals who have taken part in a reverse mortgage?
A recent ruling by HUD basically washes the Department's hands of the issue surrounding the Home Equity Conversion Mortgage (HECM) program, and two seniors who had their dead spouses' reverse mortgage erroneously insured by the Federal Housing Administration (FHA). After the deaths of their spouses, Robert Bennett of Maryland and Leila Joseph of New York found themselves facing foreclosures and displacement from their homes because they were non-borrowing spouses. They sued HUD in Federal District Court in the District of Columbia for failing to protect them as required by HECM law. They won and the Court asked HUD to come up with relief for them.
On June 4, HUD came up with a decision that says HUD has “no legal authority” to save 80-year-old Mrs. Joseph and 76-year-old Mr. Bennett from foreclosure and displacement.
“Having determined that I am unable to legally remedy the specific error identified, I also thoroughly reviewed and considered whether any form of relief exists that, while unable to remedy the legal error identified, may afford the Plaintiffs relief from the harm they have alleged as a result of the Department’s error. It is my determination that all other options for relief suffer from flaws rendering them inappropriate, impermissible and ultimately inequitable. Therefore, I am also unable to fashion any remedy that, in light of all facts and circumstances present here, is not inequitable, inappropriate, or ultimately unlikely to afford the Plaintiffs any actual relief from such harm,” reads the Determination on Remand by Carol Galante, Federal Housing Commissioner.
The concern is that many elderly couples will have trouble with this issue should a spouse pass away with the reverse mortgage in their name.
“In an age where the Consumer Financial Protection Bureau (CFPB) is slamming companies with huge fines and penalties for infractions of one type or the other, for a government agency to claim they can’t help seniors they admitted hurting is an outrage,” said Atare E. Agbamu of ThinkReverse LLC. “Don’t they have a moral responsibility to help these seniors they are tasked with protecting, if not a legal one? What makes HUD different than Bank of America or General Motors or Toyota at this point? HUD is supposed to be protecting seniors.”
After Aug. 4, non-borrowing spouses in reverse mortgage transactions will be protected from displacement, according to a new policy HUD announced in April. But the problem of existing non-borrowing spouses facing foreclosures and those expecting foreclosures when their spouses die remains unsolved because HUD is claiming it has “no legal authority” to solve them.
“In effect, HUD is saying there’s an error, but they have no way of correcting it and no plans to fix it,” said Joel M. Berman, publisher of National Mortgage Professional Magazine. “The damage caused to seniors by this matter is equivalent to Elder Financial Abuse, something that, if done by any entity other than HUD, would meet the full force of criminal prosecution.”
While this is predominantly a third-party issue, it’s clear to many in the industry that this is primarily HUD’s problem to clean up. Many view them as having made the mess in the first place, by not correcting these faulty regulations sooner.
“HUD’s decision on the existing NBS problem shows it is abdicating responsibility for its faulty regulations,” Agbamu said. “Many non-borrowing spouses and many lenders will fight needlessly in state and in federal courts in the coming months. And it is all preventable if HUD chooses to do the right thing. But who can hold HUD accountable, like Bank of America or General Motors?”