The federal Department of Housing and Urban Development has a birthday gift for 91-year-old Arizona 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 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 late 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.
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, which 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 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 the FHA.
Andrew Wilson, a Fannie Mae spokesman, said the company has a document purportedly signed by the Ogles acknowledging that their refinanced mortgage lists only John Ogle as the borrower. Jeanette Ogle said she has no recollection of signing anything of the sort. Wilson said 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, 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 Attorney General's Office to intervene. But in the meantime, the clock is ticking toward Jeanette Ogle's foreclosure. And her 92nd birthday.
Kenneth Harney's email is firstname.lastname@example.org