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Reverse Mortgages: How Did The New York Times Get It So Darn Wrong?

US Senators, reverse mortgage association weigh in on ‘misleading’ New York Times article.

An article in The New York Times depicting how heirs are upset that reverse mortgages taken out by parents are threatening their inheritance has drawn the attention of two US senators and a response from the National Reverse Mortgage Lending Association. The article, which proponents of reverse mortgages say is misleading about their dangers and blamed the heirs for worrying more about themselves than their parents financial well being, prompted Sen. Charles Schumer (D-NY) and Sen. Barbara Boxer (D-CA) to call on the Department of Housing and Urban Development to do more to make heirs aware of their rights.

The New York Times article, under the headline—“Heirs ofreverse mortgage holders may inherit the pitfalls, too”—talked about how heirs complain that their parents’ homes are being unfairly targeted for foreclosure after they died. Reverse mortgages allow those at least 62 to borrow money against the value of their homes and the loans don’t have to be repaid until the borrower moves out or dies.

The March 26 Times article talks about how under federal rules survivors are supposed to be offered the option to settle the loan for a percentage of the full amount. But what’s happening, the article contends, is that reverse mortgage companies are threatening foreclosure unless mortgages are paid in full with some foreclosing weeks after the borrower dies instead of the lesser of the loan balance or 95 percent of the property’s appraised value. They argue that discount is important given that many homes dropped in value after the financial crisis.

Officials say heirs are entitled to 30 days to decide what they want to do with the property, and have up to six months to put financing in place.

The NRMLA says in a statement that it’s reached out to “all of the parties involved to resolve the matter as quickly as possible.” It cited a letter by the senators saying mortgage companies are failing to offer the option of satisfying the loan by paying 95 percent of the appraised value. They say that unfairly penalizes a borrower’s family members and heirs who are unable to obtain refinancing to pay off the loan.

The NRMLA says some of the confusion stems from 2008 HUD rules, which required lenders to “accept nothing less than the full mortgage balance as payment from family members or heirs if there was no conveyance of the property.” The association says HUD rescinded the letter in 2011 and said it would issue further guidance but has yet to do so.

NRMLA President CEO Peter Bell says the situations about which the Senators are concerned occur as the result of a “legal vagary’’ within HUD regulations.

The implication in the letter from the senators, that’s there’s been some misbehavior, I think is completely wrong,” Bell says in a statement. “I think what’s going on here is a complex technical issue that has to do with HUD’s lawyers interpretation of when HUD should accept the 95 percent payoff. In some cases, people have someone who is on title who is not the borrower. People will get a reverse mortgage and put their kids on title, assuming that when they die the house won’t have to go through probate. But if the title hasn’t been through a legal transfer, then in HUD’s view it isn’t a sale.”

The NRMLA says the senators are asking HUD to issue rules to clarify that the mortgage may be satisfied by the borrower or by their estate by paying 95 percent of the home’s market value. They urged that a letter be developed for reverse mortgage servicers to send to borrowers’ families and heirs that outline their options for settling the loan. They say they don’t want family members to face foreclosure when they’re mourning a loss.

The senators say they want HUD to clarify those rights because the 2008 letter is confusing and could be interpreted as limiting lenders ability to collect less than 100 percent of the balance. The NRMLA says in a statement that it’s monitoring the situation and will report any new developments to its membership.

The issue has drawn the ire of financial expert and Now It Counts contributing editor Martin Andelman who says The New York Times article is misleading and that heirs need to focus on getting a job and buying their own home rather than depriving their parents of extra income.

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