While the “misunderstanding or deception” we all suffered under as to what non-recourse means is lamentable. The law of unintended consequences, as is often the case, comes into play. Since the policy forces the estate to allow the property to go foreclosure, HUD’s policy, in the long run, may benefit heirs who want to keep the home in the family.

The result is a lose-lose proposition for HUD since they will still have to payout on the insurance guarantee, incur the added expense of foreclosure, stabilization, and sale of the property, all why risking the further deterioration of the property. The heir(s), while running the risk that the property will be sold to some other party, will likely is better off. They can now buy the property back at auction or from the foreclosing lender at a price that is likely far less than fair market value of the property.

Now we have Mortgagee letter 2008-38. It carves out the borrower, the estate, and most likely the heirs from not being able to purchase the home at market value. While this is not an uncommon definition of nonrecourse, it was not the definition that was used by the vast majority of the industry to define nonrecourse for two decades. In fact Mortgagee Letter 2008-38 is the first written authoritative HUD document defining nonrecourse for HECMs in this way. For years, the vast majority of the industry has been defining nonrecourse to mean that even the borrower, the estate, or the heirs can purchase the property at market value. Our industry has boldly printed this policy in its marketing materials for years.

Here is how HUD informally described its nonrecourse policy in the October 2005 issue (Volume 2, Number 9) of its publication Reseach Works in an article titled “Reverse Mortgages: Converting Equity into Cash:”

“If the sale proceeds do not cover the amount owed, HUD will pay the lender the shortfall. FHA collects an insurance premium from all borrowers to provide this coverage, so a homeowner can never owe more than the home’s value at the time the loan is repaid.”

This is not a publication produced by anyone other than HUD. This is not someone else’s understanding, this is how HUD described its own nonrecourse policy.

It does not seem fair or reasonable for HUD to change its policy two decades after the program started. HUD should either apply Mortgagee Letter 2008-38 prospectively or rewrite Mortgagee Letter 2008-38 to make its policy coincide with that expressed in Research Works.

I was shocked by the vehemence of her reaction. I am sure the high-minded formulators of Mortgagee Letter 2008-38 never thought that their policy could be construed as ELDER ABUSE. More than ever, I am convinced that Mortgagee Letter 2008-38 is bad policy.

As seniors, their heirs(i.e., all of us),Congress,the Obama White House, AARP, and the public wake up to the unacceptable implications of Mortgagee Letter 2008-38, there will be a political firestorm. Silence is not an option in the face of bad public policy.

Maybe if counslors explain take a monthly income chances the family could still pay of the loan balance. The program was to suplement thier income.
How about FHA do a laon Modification since every one else who bought a home and lied abouth thier income are now getting a loan modification.