The AARP is challenging reverse mortgage foreclosures conducted by Fannie Mae and Wells Fargo, claiming that these lenders did not hold up their end of the bargain with senior homeowners before foreclosing[1]. Part of the terms of a reverse mortgage require that borrowers – and often borrowers’ spouses and heirs – be permitted to purchase the property after the mortgagee’s death for a discount. In many cases, this discount could amount to knocking 5 percent off market value, which in today’s market puts lenders at a huge loss. As a result, Fannie Mae and Wells Fargo are, allegedly, not making this option available, and AARP is having none of it.
For a period of time between 2008 and 2011, the department of Housing and Urban Development (HUD) ruled that the heirs to the home needed to pay the remaining balance on the mortgage if they wanted to keep the property, regardless of how much the home was worth. However, in July of this year HUD reversed its decision and reverted to “the fairer practice of not requiring payment that exceeded the updated value of the home.” However, according to AARP, the two lenders in questions are failing to give notice to surviving spouses and heirs about the “rights to purchase the property for the lower value.” Instead, they are foreclosing and evicting the spouse and/or heirs.
Do you think it is fair that the lenders should take the loss on these mortgages since the homes have fallen so far in value? What do you think about the HUD reversal?
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[1] http://www.advisorone.com/2011/08/25/aarp-sues-wells-fargo-fannie-mae-over-reverse-mort
Your question relates to the accountability of the lender in selling mortgages (reverse, sub-prime, etc.) to consumers who should not have qualified (questionable appraisals, illegally altered applications, etc.); were “advised” by slimy mortgage brokers to buy mortgages which they could not afford or in which it was impossible for the mortgagee to live up to the terms of a confusing agreement; or fell victim to these lenders that made up their own rules in the middle of the game.
If you tell me “buyer beware” you are just as ignorant as some of the consumers who followed the “advice” of mortgage brokers as though that “advice” was from someone with no axe to grind, i.e. commissions.
So, yes, let the unscrupulous lending institutions and their “hit men” periphery suffer the losses. Let’s call a crook a crook, inflict injury to those lenders et al, and get back to doing business honestly and ethically (look the meaning of these words up if they confuse you).
I have done many reverses and they were a great rescue loan for many of my borrowers. For others they were a fantastic finanacial planning strategy. The original rule was that the heirs could opt to pay off the loan at whatever the balance was if they chose to keep the house. They usually had about a year to do that.
If there was a rule change (I did not follow that) that would allow the heirs to keep the house at fair market value, I would say that it is a huge concession in the favor of the borrower. I have a mixed thought on that.
Yes, the fair market value is the only value that the bank can recover. If they take it back, that is all that they would get. It would seem that allowing the heirs to pay fair market is an equitable and justified practice. Most reverse situations deserve that.
However, some situations are not as worthy. This is why. HECM loans were made in a few forms. Some paid the lump sum to the borrower at the beginning. Borrowers took these funds and either paid off the existing mortgage, paid off credit cards, remodeled the house, paid for nursing care for a spouse or some major expense. If they did not have one of the immediate needs, they could opt for either a crediline or a monthly income or some combination thereof.
What may be more fair to the taxpayer is to recognize that the family was spared years of financial support to the family in many cases. The senior got income that allowed him to not rely upon family for support – either for necessities or for some of the less necessary.
Generally, the family was spared the additional expense whether they admit it or not. If the proceeds were taken at anything other than a monthly income, it is more likely that the house is upside down more than if proceeds were taken at a monthly pace.
I’d say that the family should be allowed to purchase it a market value or slightly higher. I’d even opt for the family paying the entire loan off if they modify the note to a current rate at the current balance. There should be no qualification for the family, just the willingness to take this over. Possible put in a ten year balloon so that it doesn’t linger forever. That gives the family time to adjust, to do what needs to be done and perhaps regain some value. Even with the house over market, the rate would be under the original rate and that would in most cases make the payment close to a rental payment.
The rule should depend upon how much cash the borrower got at the beginning. That had a huge impact on the balance after several years.
If there was still an unused balance on the creditline, I’d say kudos to the borrower and let the family take it at market.
JMHO – - there’s lots more to say on this, I’d love to sit on that committee.
This is just another indication that the American government is owned by the banks and for the banks and the voters are perenially screwed over by the banks and their politicians both elected and non. Contracts should be strictly construed against the banks and if they made a bad deal they shouldn’t be running to the government for help. The banks I would guess in every instance wrote the contracts and should comply with them. The government would be ashamed of their actions in assisting banks with throwing their heirs out of their homes, that would be if they were acting for the people instead of in their capacity as de facto bank/corporate flunkees.
First of all the lenders are not abiding by the rules set forth by regulations from the Federal Government in 2008 when U.S. Taxpayers bailed them out. The major players involved in this fiasco included: CitiBank, Wachovia-Wells Fargo, Bank of America, Washington Mutual; and, of course, the investment groups: Goldman-Sachs, Leyman Brothers and Merrill Lynch. As tax paying citizens we funded these incompetent failures with over two hundred billion dollars. Very little of this huge bailout has ever been recovered. Don’t you think the banks should be in a position to sacrifice some losses and provide a safety net for these underwater home loans? I agree it’s not fair to us homeowners who have maintained our mortgage payments on a timely basis, however, these homeowners did not commit the crimes, and coverups, which cloud the bankers notebook.
Yes, it’s fair. Look at how the lenders have ripped off the people for decades….it’s their turn to lose.