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Jeanette Ogle, a 92-year-old widow with a reverse mortgage on her house, got a huge birthday surprise last week: She did not lose her home at a scheduled foreclosure auction that had drawn scrutiny from federal and state agencies and consumer advocates.
Because of obscure federal rules that critics say have snared unwitting elderly homeowners across the country, Ogle's home in Lake Havasu City, Ariz., had been set for foreclosure on Feb. 27, her birthday. But after interventions on her behalf by the federal Consumer Financial Protection Bureau, AARP and the Arizona attorney general's office, the auction was canceled.
In a letter to Ogle, the company that ordered the foreclosure, Reverse Mortgage Solutions Inc. of Spring, Texas, said it changed its plans and is now "committed to allow you to remain in [your] home" and will "take no action to displace you as long as the mortgage agreement ... is not in default."
According to government estimates, more than 9 percent of all federally insured reverse mortgages - the ones hawked on TV by Henry "the Fonz" Winkler, among others - were in default in 2012. This is especially significant because so many reverse mortgage borrowers, like Ogle, are in their 80s and 90s, living on Social Security, and may be unaware of certain fine-print details about their loans.
Reverse mortgages work just as the name implies: Rather than the borrower paying the lender, the lender provides money to the homeowner, secured by a mortgage on their property. Borrowers under the most popular form of reverse loan, insured by the Federal Housing Administration, must be 62 or older to qualify. As a general rule, the principal and interest balances owed do not become due and payable until the borrower moves out, sells the house, dies or fails to pay property taxes or hazard insurance premiums.
One technicality tucked away in FHA's regulations can snag owners whose spouse dies after taking out the reverse mortgage. If the surviving spouse's name does not appear on the mortgage documents, the outstanding debt balance becomes due and payable. If the surviving spouse can't afford to buy the house to make the payoff, the property may be put up for foreclosure sale.
Ogle's situation illustrates the problem: She did nothing wrong. Ogle and her late husband, John, who died in 2010, refinanced a reverse mortgage in 2007. Though Ogle believed her name remained on the mortgage documents and she was a co-borrower, a loan officer listed only John's name. Ogle says she never agreed to her name being removed and suspects fraud.
When her husband passed away, the loan balance became due and payable. Bank of America - the servicer of the mortgage on behalf of Fannie Mae, the big national loan investor - informed Ogle of the FHA rule. She complained to the Arizona attorney general's office, which negotiated an agreement with Bank of America that it would not foreclose. Subsequently, however, when the servicing contract was transferred to Reverse Mortgage Solutions, that firm renewed the threat of foreclosure and set the date for the sale.
Reverse Mortgage Solutions refused to comment on the matter. Meanwhile, Ogle's son, Bob, filed complaints with the Consumer Financial Protection Bureau and with the state attorney general, seeking their help in saving his mother's home. He told me in an interview that "I don't think my mother could survive a move, she just couldn't handle [a foreclosure]." Fannie Mae, owner of the loan, expressed sympathy for her situation and promised not to evict her, but would not postpone the scheduled foreclosure.
Enter the Consumer Financial Protection Bureau. Though precisely how it brokered the final resolution of Ogle's problem has not been made public, its intervention into the case appears to have been a catalyst. Bank of America, which had made a promise in 2010 to Ogle not to foreclose simply because her name was missing from the documents, purchased her loan from Fannie Mae and now owns it. The bank then canceled the Feb. 27 auction.
"We wanted to stay true to our commitment," said Dan Frahm, a spokesman for Bank of America. "So we bought back the loan."
Ogle's reaction? "Oh, I'm on cloud nine," she said. "I'm staying put in my house. I don't have to move. And even though I'm 92, I've got all my marbles - so everybody should know I plan to be around for a while."
Ken Harney's email address is email@example.com.