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» VISIT US ONLINE @ DSNEWS.COM 19 CONSUMER ADVOCATES CONCERNED OVER NON- BORROWING SPOUSES FACING FORECLOSURE A group of consumer advocates expressed concern over non-borrowing spouses facing foreclosure and eviction following the death of a borrowing spouse, according to comments the group recently submitted, totaling 65 pages, to the U.S. Department of Housing and Urban Development (HUD). HUD and the Federal Housing Admin- istration (FHA) amended the Home Equity Conversion Mortgage (HECM) program in January to prevent reverse mortgage lenders from calling the note from a surviving non- borrowing spouse. e amendment allowed for deferral of "due and payment status" for eligible non-borrowing spouses, hence defer- ring the foreclosure process, for FHA case numbers assigned on or after August 4, 2014, and for certain eligible HECMs and surviving non-borrowing spouses for case numbers issued before August 4, 2014. e comments were submitted by the National Consumer Law Center on behalf of its low-income clients, Consumers Union, California Reinvestment Coalition, Housing and Economic Rights Advocates, Institute on Aging, and e National Housing Law Project. e groups claimed in their letter that HUD amended its HECM policy in response to sev- eral lawsuits filed on behalf of non-borrowing spouses facing eviction, but they claimed even with the amendment, not enough people will qualify for the benefits because reverse mort- gages originated prior to August 2014 did not take into account the often younger surviving spouse's age. In order for the non-borrowing spouse to qualify for the HECM relief and keep his or her house under the amendment, the servicer has to agree to assign the loan to HUD rather than pursue foreclosure. In addition, the surviv- ing spouse must be either older or the same age as the deceased borrower at the time the loan was originated, or the surviving spouse must pay off the entire loan amount or 95 percent of the home's value. ese requirements keep many from qualifying, because in many cases the surviving spouse is younger and they don't often have the money available to pay such a large sum. One of the big problems the groups are facing with this issue is that HUD has not revealed how many people are affected or how many non-borrowing, surviving spouses are facing eviction and foreclosure. "ough HUD stated that it would consider the cost, legality and practicality of its action with respect to non-borrowing spouses, the agency has not provided data or information to support its analysis, conclusions or recommen- dations," the letter said. "Indeed, the agency has yet to provide information on the scope of the problem. Nor has HUD disclosed information regarding the actual number of outstanding loans with non-borrowing spouses." In a report by the Consumer Financial Protection Bureau in February on consumer complaints regarding reverse mortgages, the most frequent complaint was on surviving, non- borrowing spouses suddenly facing foreclosure upon the death of a borrowing spouse. e report stated "some consumers report that their loan originator falsely assured them they would be able to add the other spouse to the loan at a later date." Similarly, others complained that the loans are often difficult to repay and that lenders often throw obstacles in the way when consumers take steps to avoid foreclosure. e government now requires loan underwriters to consider the non-borrowing spouse's age, which solves the problem for newly originated loans. It remains to be seen what will happen with those originated before last August, however. GSES TO STREAMLINE MODIFICATIONS FOR HOMEOWNERS AT RISK OF DEFAULT Fannie Mae and Freddie Mac announced updates to their policies to address possible interest rate increases on previously modified loans, hoping to prevent distressed borrowers from re-defaulting. Servicers are now required to evaluate mortgage loans backed by the two GSEs and actively reach out to borrowers to of- fer a streamlined loan modification if the mortgage loan was previously modified to include a step-rate feature (which allows for a gradual rate increase in the first few years) and if the mortgage rate becomes 60 days delinquent in the first 12 months following a rate increase. Servicers are required to comply with the updates for loans evaluated on or after July 1, 2015, though they are encouraged to begin complying as soon as possible. Servicers must send borrowers at least one solicitation informing them of the streamlined modifica- tion process no later than 15 days after the eligibility evaluation, should the servicer determine a borrower is eligible for a modi- fication. e updates to the servicing requirements also removed the requirement that a servicer must immediately pursue a short sale, a mortgage release, or foreclosure proceedings against a borrower should the loan become 60 or more days delinquent within 12 months af- ter the effective date of the loan modification. e GSEs made the updates to their servicing programs in order to assist the borrowers who originally modified their mortgage loans through Treasury's Home Af- fordable Modification Program (HAMP) in 2010 whose five-year modifications are due to reset this year. e streamlined loan modifi- cation option is in place to prevent HAMP borrowers who may not be able to absorb the higher payments that come with interest rate increases when their modifications reset from defaulting—or in some cases, re-defaulting. About 511,000 HAMP modifications with a 2010 vintage are due to reset in 2015; accord- ing to Treasury, about 41 percent of those were 90 or more days delinquent 42 months after the modification became permanent. Treasury also has programs in place to help borrowers handle the rate increases, or "step- ups," and avoid re-defaulting. Only a small percentage of borrowers who default or re-default on HAMP modifica- tions actually go to foreclosure, according to Mark McArdle, chief homeownership preservation officer at Treasury. Most are able to work out a solution to avoid foreclosure.

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