Over at Broker Universe, Atare Agbamu wrote an interesting article about why he thinks HUD should revoke Mortgagee Letter 2008-38. The ML was a surprise and caused a bit of stir because of the way it defines a HECM as a non-recourse loan. Prior to ML 08-38, HUD’s policy for non-recourse was:
The HECM is a "non-recourse" loan. This means that the HECM borrower (or his or her estate) will never owe more than the loan balance or the value of the property, whichever is less; and no assets other than the home must be used to repay the debt.
In ML 08-38, HUD stated that some program participants mistakenly infer from this language that a borrower (or the borrower’s estate) could pay off the loan balance of a HECM for the lesser of the mortgage balance or the appraised value of the property while retaining ownership of the home. This is not correct and is not the intended meaning of the quoted provision.
Agbamu asks why HUD decided to wait 20 years before issuing a clarification? For the last 20 years people in the industry have been misinforming seniors, their families, and the public. He brings up some great points, definitely worth the read.