2 senators question effects of a reverse-mortgage proposal

There is concern that a small wording change in the Trump administration’s proposed budget request for the Department of Housing and Urban Development could undo some of the protections for the spouse of a borrower who takes out a reverse mortgage and later dies.

Advocates for the elderly persuaded federal housing officials two years ago to offer more rights and protections to the spouse of a borrower who takes out a reverse mortgage and later dies.

Now there is concern that a small wording change in the Trump administration’s proposed budget request for the Department of Housing and Urban Development could undo some of those protections — potentially increasing the chances that a surviving spouse who did not sign the mortgage documents could lose a home in a foreclosure.

Two U.S. senators sent a joint letter to Ben Carson, the secretary of HUD and Mick Mulvaney, director of the Office of Management and the Budget two months ago, seeking clarity on the proposed wording in the budget request. The two — Sen. Marco Rubio, R-Fla., and Sen. Catherine Cortez Masto, D-Nev. — asked whether the agency was seeking to reverse the earlier policy change.

The senators have yet to receive a response from the housing agency about its intent for reverse mortgages, investment products that allow the elderly to tap the equity they have built up in their homes. And that is causing some concern.

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“Our sense is it is bad drafting, but when bad drafting goes through, it can lead to bad policy,” said Alys Cohen, a staff lawyer in Washington, D.C., with the National Consumer Law Center. “And you can lose control of things once you have new language.”

The three-decade-old market for reverse mortgages is a niche one — there are about 1 million such loans outstanding.

But reverse mortgages are viewed as crucial pieces in helping an aging population plan for retirement, and new lenders are coming into the market. The loans permit an elderly person to borrow against the equity in his or her home and avoid making any monthly payments until the borrower either dies or sells the house.

Before the change in policy two years ago, a surviving spouse who had not signed the mortgage document often had to pay what was left on the loan in full or risk being evicted in a foreclosure.

In a May 31 letter, the senators referred to the old policy as a “loophole” that had…

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