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  • Florida Appellate Court Rules Non-Signing Spouse in Reverse Mortgage is Protected from Foreclosure

    Consumer Finance

    On July 15, a three-judge panel of the Florida Third District Court of Appeal issued its opinion in Smith v. Reverse Mortgage Solutions, Inc., 2015 WL 4257632. In 2008, Mr. Smith took out a reverse mortgage on his home where he lived with his wife; only Mr. Smith signed the promissory note, but both spouses signed the mortgage. Mr. Smith died in late 2009, and Reverse Mortgage Solutions filed a complaint for foreclosure, although Mrs. Smith was still alive. The mortgage allowed foreclosure if “a Borrower dies and the Property is not the principal residence of at least one surviving Borrower.” The lower court ruled in favor of Reverse Mortgage Solutions. On appeal, however, the court interpreted the documents de novo and found that Mrs. Smith was a “borrower” “based on the plain and unambiguous language of the mortgage,” and therefore was protected from foreclosure until she died. Although the court stated that this finding would be sufficient to decide the case, it also noted several other bases for its decision, including that (i) Mrs. Smith was identified as the “Borrower” on the signature page of the mortgage; (ii) Florida’s homestead provisions require the spouse’s signature on a mortgage of jointly held property to validly convey the interest in property; and (iii) federal law applicable to reverse mortgages contemplates the foreclosure of mortgaged property and expressly defines “homeowner” to include the spouse of the homeowner. The court remanded the case to the lower court to decide whether the other condition precedent preventing foreclosure, that the property was Mrs. Smith’s primary residence, had been met. A dissenting judge argued that neither the Florida homestead provisions nor HUD requirements should affect the interpretation of the loan note. Although he was prepared to affirm the lower court decision based on the unavailability of a trial transcript, he stated that if it was necessary to address the question of whether Mrs. Smith was a “borrower,” he would conclude that she was not because both the mortgage and the promissory note generally identified Mr. Smith as the only borrower.

    Reverse Mortgages

  • CFPB Details Complaints About Reverse Mortgages

    Consumer Finance

    On February 9, the CFPB released a report detailing complaints associated with reverse mortgages. According to the report, a high volume of complaints concern requests for changes to loan terms, issues related to loan servicing, and foreclosure activities. The report covers approximately 1,200 complaints received from December 1, 2011 through December 31, 2014. The report also notes that “[s]ince the CFPB began accepting reverse mortgage complaints in December, 2011, HUD has issued more than 10 policy changes to the HECM [Home Equity Conversion Mortgage] program.” One of these policy changes, effective after March 2, 2015, will require lenders to conduct financial assessments of prospective borrowers prior to approving the loan. The change is expected to decrease defaults due to non-payment of real estate taxes and insurance for loans originated after March 2.

    CFPB Reverse Mortgages Consumer Complaints

  • CFPB Updates Reverse Mortgage Guide

    Lending

    On September 24, the CFPB published an updated reverse mortgage guide on its blog to account for HUD’s recent changes to reverse mortgage programs. The blog post highlights new limits to lump sum, first-year payouts under reverse mortgages, as well as HUD’s new protections for non-borrowing spouses. For example, non-borrowing eligible spouses no longer need to choose between paying off the reverse mortgage or moving out when their borrowing spouse dies; instead, depending on the circumstances, they may be able to stay in the home. Consistent with its first reverse mortgage guide, issued in July 2012, the Bureau’s new guide strongly encourages consumers to consider all options before obtaining a reverse mortgage and points to HUD-approved housing counselors as their best resource.

    CFPB HUD Reverse Mortgages

  • HUD Seeks Comments On Limits Of Insurability Of Fixed Interest HECM Products, Announces Other HECM Program Changes

    Lending

    On July 10, HUD published a request for comment on its recent amendments to the Home Equity Conversion Mortgage (HECM) reverse mortgage program to limit the insurability of fixed interest rate reverse mortgages. Although those changes already took effect under the emergency action taken by HUD, it now seeks public comment on those changes. HUD also recently took two other actions related to the HECM program. In Mortgagee Letter 2014-10, HUD reminded mortgagees of the FHA’s requirements prohibiting misleading or deceptive advertising, described those prohibitions, and clarified that they extend to misleading or deceptive descriptions of the HECM program. On June 27, HUD issued Mortgagee Letter 2014-12, which announced new HECM principal limit factors. HUD’s new principal limit factor tables now include principal limit factors where the borrower has a non-borrowing spouse younger than 62.

    HUD Reverse Mortgages Mortgagee Letters

  • HUD Policy Revisions Address Emerging HECM Risks

    Lending

    On June 18, HUD issued Mortgagee Letter 2014-11, which amends the HECM reverse mortgage program to limit the insurability of fixed interest rate reverse mortgages. The letter explains that HUD has identified new emerging risks in connection with certain fixed interest rate HECM strategies that are being introduced in the market. Specifically, HUD is concerned about (i) a new option that “strongly encourages the mortgagor to take the maximum amount available during the first twelve-month disbursement period and to take the remaining amount shortly after the expiration of the first twelve-month disbursement period whether they need it or not;” and (ii) a second option that “emphasizes mortgagor options for future draws at the fixed interest rate set at origination.” As a result, under the new policy, FHA will only insure fixed interest rate reverse mortgages where the mortgage limits the mortgagor to: (i) a single, full draw to be made at loan closing; and (ii) does not provide for future draws by the mortgagor under any circumstances. In addition, FHA will only insure adjustable interest rate reverse mortgages where the payment plan option is either: (i) tenure; (ii) term; (iii) line of credit; (iv) modified tenure; or (v) modified term. The letter details numerous additional related policy changes, describes changes to HECM loan document forms required to implement the policy changes, and updates instructions for entering in FHA Connection a fixed interest rate HECM with a single disbursement lump sum payment option.

    HUD Reverse Mortgages FHA Mortgagee Letters

  • Connecticut Bill Revises Licensing Laws, Numerous Other Financial Services Laws

    Consumer Finance

    On June 3, Connecticut Governor Dannel Malloy signed HB 5353, which makes numerous unrelated changes to Connecticut’s laws governing financial services companies. For example, with regard to mortgage servicing, the bill: (i) modifies who is subject to licensure and expands the scope of services subject to licensure; (ii) adds new licensing, application, fee, bonding, and recordkeeping requirements; (iii) establishes servicer conduct standards; and (iv) grants the state regulator authority to conduct investigations and examinations and take enforcement actions against violators. For the various types of mortgage loan originators, the bill increases the pre-licensing and continuing education and testing requirements, and modifies the exemptions from licensure that apply to certain subsidiaries of banks and credit unions. With regard to licensing in general, the bill extends the banking commissioner's authority to use the NMLS, authorizes the system to receive and maintain licensing and registration records, and establishes filing, licensing, fees, reports, and other system procedures and requirements. The bill also, among other things, (i) establishes procedural requirements for a Connecticut bank that proposes to close a loan production office; (ii) expands the definition of an “automatic teller machine” to include those equipped with a telephone or televideo device that allows contact with bank employees; (iii) extends the state's foreclosure mediation program by two years, until July 1, 2016; and (iv) establishes a task force to study and develop a report for the General Assembly on the reverse mortgage industry.

    Mortgage Servicing Reverse Mortgages Licensing

  • HUD To Insure Reverse Mortgages Protecting Non-Borrowing Spouses; Senators Seek Protections For Surviving Heirs

    Lending

    On April 25, HUD issued Mortgagee Letter 2014-07, which states that effective August 4, 2014, HUD will apply an alternative interpretation of Subsection 255(j) of the National Housing Act, which HUD has interpreted to limit its reverse mortgage program (HECM) to insuring only those that contain a safeguard to defer repayment of the loan until the homeowner’s death and certain other circumstances. Going forward, HUD also will insure HECMs that contain a provision deferring the due and payable status in the event of the death of the last surviving mortgagor or the death of the last surviving non-borrowing spouse (including common law), if the spouse was identified at the time of closing. HUD states the change will obviate the need for non-borrowing spouses to refinance the loan upon the mortgagor’s death. HUD intends to publish a rule on this issue, but decided to take initial action through a mortgagee letter, as allowed under the Reverse Mortgage Stabilization Act of 2013.

    On April 30, Senators Schumer (D-NY) and Boxer (D-CA) sent a letter to HUD Secretary Donovan following reported allegations that reverse mortgage companies are threatening heirs with foreclosure instead of following HUD’s rules and allowing them to satisfy the loan at 95% of current appraised value. The Senators' letter asks HUD to: (i) issue a mortgagee letter making clear that a matured reverse mortgage loan can be extinguished by the mortgagor, the mortgagor’s estate, or personal representative by paying 95% of the home’s market value; (ii) develop a letter that servicers can send to a borrower’s family members and heirs that outlines options for satisfying the loan; and (iii) enforce existing rules and require that any servicer that fails to offer this option within the required time allow a family member or heir to pay the lower of 95% of the home’s value at the time the loan became due or 95% of the home’s value at the time the error was corrected.

    HUD Reverse Mortgages FHA U.S. Senate Mortgagee Letters Refinance

  • Bank Obtains Dismissal Of Surviving Heir's Reverse Mortgage Class Action

    Lending

    On January 3, the U.S. District Court for the Northern District of California dismissed with prejudice a putative class action alleging a bank breached its Home Equity Conversion Mortgage Deed of Trust and HUD regulations by failing to provide a surviving heir notice and opportunity to purchase the property at 95 percent of its appraised value. Chandler v. Wells Fargo Bank, N.A., No. 11-3831, 2014 WL 31315 (N.D. Cal. Jan. 3, 2014). The court held that the plain language of the deed does not require such notice, in part because the relevant section of the deed that requires the lender to provide notice when the loan becomes due and payable and an option to purchase the property for 95 percent of its appraised value prior to foreclosure (i) specifically does not include as a triggering event the death of the borrower, and (ii) grants rights to the borrower, not the borrower’s heirs. The court also rejected the heir’s claims that HUD regulations required the same notice and opportunity to purchase. The court held that the HUD regulations were not incorporated into the deed, and, even if they were and could be read to allow an heir to take advantage of the 95 percent rule, the applicable HUD interpretation of those regulations at the time required full payment of the debt.

    HUD Class Action Reverse Mortgages

  • HUD Delays Reverse Mortgage Requirements

    Lending

    On December 20, HUD announced in Mortgagee Letter 2013-45 that new requirements related to the FHA’s Home Equity Conversion Mortgage program (HECM) are tolled pending further guidance from the agency. Since announcing the new financial assessment requirements and funding requirements for the payment of property charges in September 2013, HUD has received comments that require HUD to update the requirements and guidance. Given those changes, HUD delayed the original date for compliance with the requirements—January 13, 2014—and will set a new effective date when it issues the updated guidance. Mortgagees will have at least 90 days to comply with the new guidance.

    HUD Reverse Mortgages Mortgagee Letters

  • Texas Reverse Mortgage Constitutional Amendment Takes Effect

    Lending

    On November 22, an amendment to the Texas constitution took effect to permit the use of a reverse mortgage for the purchase of a homestead property. The amendment was approved by Texas voters on November 5. Under the amendment, a borrower must (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 requires 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.

    Reverse Mortgages

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