Reuters: NRMLA Seeks Resolution in AARP Lawsuit Against HUD

NewImageThe media coverage of the AARP lawsuit continues and the latest is from Reuters contributer Mark Miller.

The lawsuit stems from the Department of Housing and Urban Development’s decision to clarify its non-recourse policy for the HECM program in 2008.

Guidance published by HUD requires that an heir, including a surviving spouse who was not named on the mortgage, must pay the full mortgage balance to keep the home, even it if exceeds the value of the property. Borrowers not related to the heir could purchase the home for the price, not the loan amount.

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Peter Bell, president of the National Reverse Mortgage Lenders Association told Reuters it believes an equitable resolution would allow that a sale to a family member be on the same terms as a sale to a third party.

“We believe we can even the playing field for families and, at the same time, implement safeguards to ensure a fair market value transaction,” he said. “As we have worked with HUD on improving so many features of the reverse mortgage program, we are eager to work with them and AARP to make sure families are not penalized for being related to borrowers.”

AARP lawsuit: Reverse mortgages cause foreclosures

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  • If he is right, the Reuters reporter almost unwittingly exposes rifts between lenders, counseling, HUD, and AARP regarding the issues in this lawsuit. This comment only addresses the positions of NRMLA and AARP.

    While a small piece of the case addresses Mortgagee 2008-38 and the nonrecourse issue, yet that is all Peter Bell is shown as addressing. Peter does not seem to take any position on the the most fundamental issue which is whether or not a non-borrowing can be displaced out of the home as a result of the death of a spouse who was a HECM borrow at the time of death as clearly implied in 12 USC 1715z-20(j). 12 USC 1715z-20 is the principal section of the United States Code specifically and exclusively dealing with HECMs.

    In its press release AARP discusses the non-borrowing spouse provision as follows: “A second important protection in the HECM statute – titled ‘Safeguard to Prevent Displacement of Homeowner’ – provides that HECM homeowners cannot be displaced from their homes until the HECM terminates. It then states that ‘…for purposes of this subsection, the term ‘homeowner’ includes the spouse of a homeowner.’ Therefore, the spouse – even one who is not named on the mortgage – cannot be arbitrarily displaced from the home upon the death of the borrower. Despite the clear language, HUD has never recognized the protection this non-displacement provision affords the spouse of a homeowner, according to the lawsuit.”

    As an originator, I have never considered the implications of 12 USC 1715z-20(j) which is titled “Safeguard to prevent displacement of homeowner” and states in part: “The Secretary may not insure a home equity conversion mortgage under this section unless such mortgage provides that the homeowners obligation to satisfy the loan obligation is deferred until the homeowners death, the sale of the home, or the occurrence of other events specified in regulations of the Secretary. For purposes of this subsection, the term homeowner includes the spouse of a homeowner.”

    I doubt if the three surviving spouses, the only principal plaintiffs in this case, will be satisfied with Peter’s offer. It certainly does not address displacement of surviving spouses who are not borrowers or in some cases not on title at the time of the borrowing spouse’s demise. I do not believe that even Atare addressed this particular issue before now.

  • The Reuters article writer exposes the real bias of several parties. Perhaps none seems as exposed as than that of Dr. Stucki. Per linkedin.com, Dr. Stucki has degrees in anthropology (with emphasis in earth science, archaeology, and gerontology) from some of the most highly respected schools in the country. While not knowing her personally, she comes across as a very strong, authorative speaker particularly when discussing financial matters.

    Here is what she is quoted as saying about HECM brokers: “‘It’s way too common for a mortgage broker to convince clients that only the older spouse should sign the loan, or even to set it up that way without telling them,’ says Barbara Stucki, vice president of home equity initiatives at the National Council on Aging.” The reporter makes it appear that Dr. Stucki is very comfortable in openly accusing brokers of intentionally acting in bad faith and referring to it as “way too common.”

    The reporter goes on to write: “Non-borrowing spouses are required to go through HECM counseling only if their names are on the property title, but Stucki says most counseling organizations require that both spouse attend, anyway. But she says the AARP lawsuit points to the need for further improvements in the counseling process…. ‘A home is the most valuable asset, and many people will tap it one way or the other,’ she says. ‘This option comes with a non-recourse feature, consumer counseling and significant HUD oversight, so there’s a lot of value to this program. But we need to make sure it is done right and spouses are treated properly.’” It is interesting that Dr. Stucki knows what most counseling agencies require on this point.

    Dr. Stucki never states that most married couples are co-borrowers. Has she ever seen the stats on how many HECM borrowers are married and the other spouse is not a borrower?

    In reading the short synopsis of the three cases in the AARP press release, it seems: (1) the Bennett case involves a spouse who was supposedly removed off title without his knowledge or consent; (2) the Joseph case involves the removal of the competent spouse from title, while the other spouse with dementia executed the HECM; and (3) the Moore case involves a spouse who was never on title. In the press release it is never mentioned if the originators were employed by lenders or (nefariously evil) brokers.

    One thing the writer never exposes is the position of Dr. Stucki on either Mortgagee Letter 2008-38 or the displacement issue found in 12 USC 1715z-20(j). It seems Dr. Stucki did not let the writer know how counseling in general or NCOA in particular will address these issues now or in the future. It seems making accusations is much easier than taking positions on controversial issues where the overseer (HUD) of your employer and industry is involved.

  • The Critic —
    The immediate issue two years ago when I challenged HUD was ML 2008-38. The non-borrowing spouse issue is a separate but related issue. Any careful student of my work in the industry knows I have addressed the non-borrowing spouse issue. As far back as 2005, I addressed it as evidenced by this piece on Tim Linger’s Web Site:
    http://www.timlinger.com/?page_id=524
    Why did it take two years, a major lawsuit, and the resignation of an FHA Commissioner to arouse sudden interest in resolution? This lawsuit was preventable.

    • Atare,

      There appears to be no written link between the resignation and the suit, although the timing is most interesting. It certainly does seem the suit could have played some role in his resignation decision, especially as to timing.

      I read your discussion about spouses on Tim’s website but in no part of that presentation did you discuss 12 USC 1715z-20(j) directly or indirectly. You zeroed in on Mortgagee Letter 2006-25 (a ML primarily dealing with counseling). All discussions I have heard on removing the age-ineligible spouse were very similar to the one you present to Tim. I do not know any conscientious originator who has been involved with removing a spouse from title who has not been bothered by it including me.

      My sole experience was a very, very typical but positive one. The couple were about to lose their home. They had two of their parents, some children, and several grandchildren living with them in a larger six bedroom home. He was a disabled truck driver who had just turned 60. In 18 months from our first meeting, a sizable deferred annuity awarded by a court due to his job related injury would start paying benefits and he wanted to get another forward mortgage at that point. We found a proprietary reverse mortgage with no upfront fees that could bridge them through their situation but he had to come off title so that his 62 year old wife could close the loan. There was not one week in that 80 week period when I was not concerned about that decision. Nineteen months later they called to thank our loan officer and tell me they had just closed on an excellent forward mortgage.

      While I had read 12 USC 1715z-20(j) on at least two occasions before 2011, I never dreamed it would be applied in the manner that the attorneys for the plaintiffs have presented it. It seems that interpretation of this subsection is not just new territory to me but to you as well.

      Do you have any specific comments on 12 USC 1715z-20(j)? This is the first time I have ever seen it addressed.

    • Atare,

      You are a true historian of and very knowledgeable about issues in our industry. What do you know about the interpretation of this law? It seems many of us were oblivious to the spousal displacement issue the lawyers are litigating. Has it been addressed in the past?

      • The Critic —

        This is the first time it is going to be tested. It has been on the books from day one, and the legislative intent is pretty clear: Congress doesn’t want vulnerable “non-borrowing” HECM spouses on the streets. It is a can of worms, thanks to the problems caused by ML2008-38.

      • Atare,

        You are not the first to confuse me with The_Critic. Most of the time as now, I am not flattered by the confusion. However, that may be just a matter of changing my username on DISQUS which I am somewhat reluctant to do at this late hour.

        Personally, I do not find the ramifications of having ML 2008-38 overturned nearly as great as having the interpretation of the attorneys for the plaintiffs regarding displaced spouses upheld. What a monster issue if a HECM would have to stay in place until a surviving 22 year old spouse dies, moves into a different home, or violates some other termination covenant.

        There are several simple measures HUD could take to protect itself if ML 2008-38 is overturned including requiring that the appraiser who does the valuation at termination be an independent third party appraiser selected by the HUD appraisal group. The loss to HUD should be minimal. It seems doubtful if historically 2% of all terminations resulted in the borrower or the heir purchasing the home for the balance due IF the value of the home was less.

        Every single HECM could be impacted by a displaced spouse rule no matter whether the borrower was married to the surviving spouse at the time of HECM closing or not. Again what happens if a 22 year old marries an 87 year old who dies within days of the wedding and the 87 year had obtained an existing HECM at age 62. The surviving spouse was not even born when the HECM was closed. That concept would destroy the HECM financial model and all but obliterate the principal limit factors.

        Imagine a principal limit factor which uses the life expectancy of the youngest borrower plus the life expectancy of a 16 year old. Congress needs to revoke 12 USC 1715z-20(j) since it does not seem to be a part of the current HECM program. If it does not, it seems to have the potential to undo any significant value to the HECM program and leave American taxpayers at substantial risk.

        For the sake of the program I am far more concerned about the displaced spouse issue than about ML 2008-38 or even the underage spouse issue. Yes, it is clear that it has been law for decades but the question is if the application is not as that described above, what is it? Has HUD ignored it the way it has ignored the coop issue and ignored the LTC issue (until Congress repealed the LTC provision in HERA)? HUD could be perfectly within its right not to interpret the provision the way that the attorneys for the plaintiffs do or just to ignore it entirely but it is a little unnerving to look at the suit and read the interpretation of spousal displacement provision.

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