AARP’s legal battle against wrongful reverse mortgage foreclosures has shifted from government regulators to lenders.
The AARP Foundation Litigation unit filed a class action lawsuit yesterday against Wells Fargo Bank and the Federal National Mortgage Association (Fannie Mae), charging that they failed to allow surviving spouses and heirs of reverse mortgage borrowers to purchase the property for the appraised value after loans came due — typically after the borrower’s death.
At the heart of the dispute is what happens to the most popular type of reverse mortgage, the Home Equity Conversion Mortgage (HECM), which is regulated and insured by HUD passes on to a spouse or an heir. The HECM is designed so that borrowers can never owe more than the value of their homes, even though the loan balances rise over time. The intent was to assure elderly borrowers that HECMs were safe.
AARP’s litigation against HUD sought foreclosure relief for spouses of deceased reverse mortgage borrowers. It charged that HUD illegally implemented two important rule changes in 2008. The first stated that the non-recourse provision would apply only when properties are sold. That meant that if the spouse dies, the surviving non-signing spouse would have to repay the full outstanding HECM balance, even if the home’s value had dropped.
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