On May 22, the Texas legislature adopted a joint resolution, SJR 18, to propose an amendment to the Texas Constitution to allow a reverse mortgage for the purchase of a homestead property. Under the amendment, a borrower would need to (i) occupy the homestead property as a principal residence within a specified time after the reverse mortgage closing and (ii) complete financial counseling before the reverse mortgage closing. The amendment would require a lender to provide to a prospective borrower a detailed disclosure of conduct that could lead to foreclosure, including among other things, the failure to pay property taxes. The proposed amendment will be decided by the voters on November 5, 2013.
On June 12, the U.S. House passed H.R. 2167, the Reverse Mortgage Stabilization Act, which would authorize the HUD Secretary to establish, by notice or mortgagee letter, any additional or alternative requirements determined necessary to improve the fiscal safety and soundness of the Home Equity Conversion Mortgage (HECM) program. During recent hearings in both the House and Senate, the FHA has sought more flexibility to pursue program changes outside of the formal rulemaking process. A Senate bill, S. 469 is similar to the House version, but in addition would require that HECM mortgages contain terms and provisions for establishing escrow accounts, performing financial assessments, or limiting the amount of any payment made available under the mortgage.
HUD Announces Reverse Mortgage Program Changes, Increases Mortgage Insurance Premiums, Alters Underwriting Requirements
On January 30, HUD announced that for FHA case numbers assigned on or after April 1, 2013, FHA will use a consolidated pricing option for its home equity conversion mortgages, as explained in more detail in Mortgagee Letter 2013-01. Separately, HUD also announced that effective April 1, 2013, the mortgage insurance premiums for most new mortgages will increase by 10 basis points, and by 5 basis points for jumbo mortgages. To further support the stability of the Mutual Mortgage Insurance Fund, FHA also issued Mortgagee Letter 2013-04 to require most borrowers to continue paying annual premiums for the life of their mortgage loan, reversing a policy adopted in 2001 under which FHA cancelled premium requirements on loans when the outstanding principal balance reached 78 percent of the original principal balance. FHA also will (i) require lenders to manually underwrite loans for which borrowers have a decision credit score below 620 and a total debt-to-income ratio greater than 43 percent, (ii) increase from 3.5 to 5 percent the minimum down payment for jumbo loans, and (iii) increase its enforcement for FHA-approved lenders with regard to aggressive marketing to borrowers with previous foreclosures. Separately, HUD issued Mortgagee Letter 2013-02, which updates the certification language for all late endorsement requests for reverse mortgages. Finally, through Mortgagee Letter 2013-03, HUD extended to March 15, 2013 the date by which lenders must begin to assess borrowers in default under a new loss mitigation priority order and policies, as outlined in Mortgagee Letter 2012-22.
On January 4, the U.S. Court of Appeals for the District of Columbia held that two widowed spouses have standing to pursue allegations that a HUD regulation defining conditions under which it would insure a reverse mortgage agreement contradicted the governing statute, and in doing so made it easier for lenders to foreclose on homes occupied by surviving spouses. Bennett v. Donovan, No. 11-5288, 2013 WL 45879 (D.C. Cir. Jan. 4, 2012). The surviving spouses, neither of whom were legal borrowers under the reverse mortgages entered into by their spouses, sought declaratory relief that HUD’s regulations requiring that the mortgage be due and payable in full if a borrower dies and the property is not the principal residence of at least one surviving borrower violated the Administrative Procedure Act because the rule is inconsistent with the governing statute. The statute protects “homeowners,” as opposed to “borrowers,” from displacement and defines “homeowner” to include “spouse of the homeowner.” The district court held that the spouses lacked standing to sue HUD because relief for their injuries depended solely on the lenders’ decision whether to foreclose. The appellate court held, however, that in situations like those at issue here, it is within HUD’s power to provide complete relief to the lenders and borrowers, and therefore such relief is likely, as opposed to speculative, and as such is sufficient to establish standing. Though it limited its holding to the standing issue, the court added that it was “puzzled” by HUD’s attempt to justify a rule that appears to contradict the governing statute. Further, the court outlined potential relief that HUD could provide, explaining that HUD could accept assignment of the mortgage, pay off the balance of the loans to the lenders, and then decline to foreclose against the spouses. The court reinstated the case and remanded for further proceedings.
Last week, California enacted several additional mortgage-related bills. First, AB 1599 requires that a mortgagee, trustee, beneficiary, or authorized agent attach to the already required recorded notice of default and notice of sale, a summary of the information required to be contained in those notices. The notices must include a statement referencing the attached summary, but the summary need not be recorded or published. Second, SB 980 extends until January 1, 2017 the existing prohibition against persons facilitating loan modifications from requiring or accepting pre-performance compensation, requiring collateral to secure payment, or taking power of attorney from the borrower. Finally, AB 2010 requires that reverse mortgage counseling be conducted in person, unless the borrower elected to receive counseling in another manner.
On September 11, HUD announced the launch of a new platform to manage its home equity conversion mortgage portfolio. Mortgagee Letter 2012-17 advises mortgagees of the new system and related claim enhancements, and directs mortgagees to additional information about the new online platform.
On June 28, the CFPB released a report to Congress detailing the characteristics and evolving uses of reverse mortgages in today’s marketplace. The report presents findings from a CFPB study on reverse mortgages required by the Dodd-Frank Act. Among the findings, the CFPB report states that reverse mortgages are often difficult for consumers to understand. The report further observes that reverse mortgages are being used by younger borrowers to obtain all available equity upfront, a use that contravenes the original and intended use of reverse mortgage products and may pose substantial risks to consumers. Concurrent with the release of the report, the CFPB issued a Notice and Request for Information on topics related to reverse mortgages and will accept comments for 60 days following publication of the Notice in the Federal Register. The CFPB intends to use the information and comments received from the public, as well as the findings from its study, to determine whether further consumer education or regulatory action related to reverse mortgages is necessary.