Older American consumers, the widowed spouses of Home Equity Conversion Mortgage reverse-mortgage borrowers, are being kicked out of their homes in violation of federal law.
On February 4, 2014, Rev. Lewis Melvin Riddick of Woodbridge (Virginia) died. Using Rev. Riddick’s death as a trigger on October 10, an Illinois-based reverse mortgage lender or its successor foreclosed on the home Rev. Riddick shared with his widow, Dianne Barnes Riddick.
Because reverse mortgage lenders get their marching orders (or "guidance") on foreclosure from the U.S. Department of Housing and Urban Development (HUD), we must assume that this foreclosure and probably others are happening with HUD’s knowledge. And this probability raises some questions:
How many illegal HECM foreclosures are going on across the country? How many existing HECM non-borrowing spouses are there? How many HECM non-borrowing spouses are going to lose their homes when their borrowing spouses die? What is HUD doing to stop the illegal foreclosures? Why is HUD shifting responsibility for a problem caused by its flawed regulations to widowed spouses and to lenders? And, more importantly, who will hold HUD accountable on this issue?
In recent filings in the U.S. District Court for the District of Columbia, HUD said the death of an HECM borrowing spouse is no longer a “trigger” for initiating foreclosure proceedings where there is a non-borrowing spouse. According to HUD, absence of the death trigger is an “automatic” consequence of invalidation of its regulation by the district court in a Memorandum Opinion on September 30, 2013. Yet, the Riddick foreclosure says otherwise.
The heart of the matter is that a federal court found that HUD regulation violated federal anti-displacement law. The law gives protection to spouses of HECM borrowers whether or not they signed the loan papers as co-borrowers. The court asked HUD to come up with a remedy that addresses the plight of non-borrowing spouses. So far HUD has come up with options structured to ensure few will get relief. In addition to confusion about what HUD’s policy is on the existing HECM non-borrowing spouses, this responsibility vacuum is encouraging lenders to foreclose on widowed spouses such as Mrs. Riddick.
Needless to say, your agency exists to protect consumers from financial abuse. The underlying assumption that such abuse is a private-sector problem requires rethinking in view of this case.
Like bad products and services, bad regulations hurt people. When they do so to vulnerable groups, a decent society demands that amends must be made. In its short life, your bureau has imposed significant financial penalties on companies whose products and services have harmed consumers.
The owners, if not the management, of these companies have suffered financial pain. Why should HUD be an exception because it is a federal government agency? Why should it be allowed to escape financial consequences by claiming that it needs to protect its insurance fund at the expense of tax-paying widowed spouses and lenders?
Imagine a Bank of America or a General Motors or some other big company saying that they cannot pay for their misdeeds because they need to protect their shareholders’ financial interests? There would be justifiable public outrage. Their leaders would be lampooned and hauled before Congress.
Here is the bottom-line, Mr. Cordray: HUD broke the law and vulnerable widowed HECM non-borrowing spouses (you are sworn to protect) are paying the price: getting kicked out of their marital homes. It is an affront to justice. Please do something about it! Thank you.