The Real Deal New York

Caught in a reverse (mortgage) nightmare: HUD policy draws scrutiny, lawsuit

By Kenneth R. Harney | February 01, 2013 01:30PM

The U.S. 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 — 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, has been big business, and promoted on television 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.

HUD’s policy on surviving spouses has been challenged in a federal lawsuit filed by AARP, the seniors advocacy group. On behalf of two widows and one widower 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 Ogle’s pending foreclosure. So did Ogle’s loan servicer, Reverse Mortgage Solutions, of Spring, Texas, which initiated the foreclosure action. Fannie Mae said the foreclosure would have to proceed because the mortgage is FHA-insured 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.

Kenneth R. Harney is a syndicated real estate columnist.

  • fg

    Maybe Robert Wagner and former Sen. Fred Thompson could write a check and help thiis poor lady stay in her house. Since they are making plenty of money pitching this progtam.

  • Jim the Realtor

    It’s not their fault we have a jerk for a Gov’t! Sounds like a common theme creating a huge problem if “100’s of Seniors” are in the same position. They need to clarify that condition to the point that it becomes so redundant that the senior’s can’t help but understand the potential problem. Someone, somewhere, is not doing their job efficiently.

  • I wonder if any of this was mentioned during the reverse mortgage counseling required to be provided by a HUD trained counselor.

    • kal98

      also cost 125 dollars either upfront or rolled into the loan

  • rashedul

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  • dougkinan

    The reverse mortgage scam is only the tip of this iceberg. The implications and expense of the probate problems have not been written about as far as I know.

  • kal98

    once again HUD and FHA let total underwriters and pitch con people write up legal documents and you pay out the kazoo, the monthly Mortgage insurance policy goes to FHA and supposedly keeps one from not losing the home because the home value can never depreciate lower than the loan value but I read all the time this is not true , if you get an adjustable rate there’s another monthly bookkeeping fee, and your homeowners insurance will go up drastically to cover the new loan amounts, with now full replacement cost, INSTEAD our government which is suppose to be for the people by the people should take the trillions in war inc money and give people bailouts, help all life to thrive and not be one big ponzie scheme to feed off the innocent and hardworking, We are now supporting illegals with free money, lawyers, housing, food, educations etc but a hardworking citizen gets the fing shaft wtflip!