CNN: Analyst Weighs in on AARP and HUD Reverse Mortgage Lawsuit

Over the weekend, CNN correspondent T.J. Holmes reported on AARP’s lawsuit against the Department of Housing and Urban Development for changes made to its HECM program.

The segment lasts almost four minutes and includes an appearance by Clyde Anderson, Chief Thinker at Clyde Speaks, who weighs in on the situation.  The segment starts off as one would expect but slowly shifts away from the AARP lawsuit, to what Anderson thinks about reverse mortgages.  Does he think reverse mortgages can still be a good option for people?

“It depends on the situation, there are so many other options for you,” he said.  Does our “expert” recommend the loans?  Watch the video and find out.

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Hint, he claims that borrowers have paid 20k in fees to get $1,800… we all know that’s not possible.  Having trouble viewing the video below?  See here.

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  • This segment helps illustrate the problem of calling a reverse mortgage an equity something or other. The “knowledgeable” speakers separated it from loans. They talk as if all HECM participants get cash which may be true in some cases but not all.

    I disagree with John about the possibility of a senior only getting $1,800; it is possible that someone may only get that amount directly paid to her/him. What the speaker did not discuss was if, besides the money paid directly to the senior, funds were paid to other sources on BEHALF of the senior such as mortgagees, other lien holders, credit card companies, etc. It was obvious the speakers had little if any idea, a HECM is first and foremost a mortgage insured by FHA.

    When we speak, advertise, market, or communicate that a reverse mortgage somehow relates to equity, we add to the confusion about the product. In 1989 and 1990, perhaps this differentiation made some sense but today it verges on the misleading. Seniors are not permitted to take a HECM on the equity of their home. The entire home must be the collateral on the mortgage NOT just its existing equity otherwise reverse mortgages could be a first, second, third, etc. depending on how many liens were in existence before the reverse mortgage. A HELOC is in a true equity loan but not a HECM.

    Not only did the speakers not know about the reverse mortgage they had no idea about the plaintiffs in the lawsuit. They claimed that in all three cases the spouses were taken off of title. While one was allegedly taken off of title without his knowledge and another was taken off of title so that the spouse who allegedly lacked contractual capacity could get the loan, per Mr. Peter Bell the third individual supposedly married the borrower after the loan was funded. While the speakers seemed to have some idea about the nonrecourse issue in the case, they never addressed the displaced spouse issue.

    Why the press especially the more liberal sector continually misrepresents what HECMs are as badly as they do is a mystery. CNN should have a go to person on the subject who is given the time and resources to fully look into the matter. This segment made CNN look like a bunch of amateurs. CNN needs to address their misrepresentation of HECMs just like Fox News did, not that long ago.

  • It might be worth it to have NRMLA through our public affairs campaign reach out to Mr. Anderson. I have seen him before make uninformed comments, and as long as he has a forum to make these erroneous statements, we will suffer greatly.

  • To me, it is interesting, but if you watch the video a few times, T.J. Holmes reactions and body language (start at the 2:50 mark) seem to indicate that he himself is surprised at the misinformation Clyde Anderson is dispensing. But, due to the friendliness and shortness of the segment, he really has no opportunity or desire to call Anderson out on it.

    Just an observation.

  • What a shame for our industry that so-called “experts” spew such falsehoods about our product. These people should be vetted by the news channels before allowing them to speak. I agree that NRMLA speak with this gentleman about the facts and also contact CNN to request he be brought back on to explain his errors. Too many of our seniors watch these types of programs and misinformation of this type puts a permanent bad conotation into their minds.

    • georger23,

      The hard thing is who would the news services select or accept as the vetting party. Worse yet, they could have done what they believed to be vetting.

    • georger23,

      The hard thing is who would the news services select or accept as the vetting party. Worse yet, they could have done what they believed to be vetting.

  • WHAT? Wow, that was a bunch of misinformation. First of all, current HUD rules state that the repayment can never be more than the value of the home so in the example stated, if the balance is $300K and the home appraised for $200K, the heirs DO NOT owe $300K, they owe $200K.

    Second, most origination fees amount to about $10-$11,000, not $20,000 so that “fact” is suspect as well. Also, the new “HECM Saver” program provide lower loan-to-value limits but only .01% FHA insurance as opposed to the 2% required in the standard plan.

    Third, as James_E_Veale_CPA_MBT stated above, if $1800 is all the borrower could get, it must be because there were other mortgages to be satisfied in order to close the HECM. But the borrower also won “no more mortgage payments” on those liquidated loans so it’s misleading to insinuate that he/she got ripped off or taken advantage of.

    The only valid statement seems to be that a spouse not on the deed or a surviving family member could indeed get “ripped off” in that an arms-length buyer has access to foreclosure auction purchase while the surviving family does not. Their only recourse is sale, short sale, or accepting foreclosure action against them. This is something that HUD needs to address.

    Another important aspect that HUD needs to address is their failure to include cooperative housing units in their current list of eligible property types. These were included in the original HUD charter for reverse mortgages but to date they have not been made available. It is a shame, because most cooperatives limit leveraging on their units so they’ve probably got the lowest foreclosure rate of any housing type, yet HUD will not back reverse mortgages on coop units for God knows why not. New York City has to be 80% coop properties and I’m shocked that the real estate community in New York hasn’t made more noise about this. All HUD has to do is establish qualification guidelines for the coop project itself just like Fannie Mae has all these years for forward coop loans (they’re not technically “mortgages” but they act just like them). Bank of America was the only lender in the country offering a private reverse mortgage product for coops, much lower loan to value limit than HUD HECM’s but still a valuable resource for seniors in coop communities. Then BA pulled the plug on ALL HECM’s.

    • paula_hudsonviewrealtydotcom,

      As to the HECM nonrecourse issue, the current position of HUD is found in Mortgagee Letter 2008-38. It requires that for a borrower or heir to keep the home at loan termination, he/she/they must pay off the loan in full no matter what the appraised or market value of the property. That means if the house is worth $200K and the balance due is $500K, they must pay $500K to keep the house. If he/she/they sell or walk away from the property they will not owe anything else.

      So how can a borrower justify paying $500K for a home which an unrelated buyer would only pay $200K. That is the trouble with ML 2008-38. Most of us had explained the nonrecourse issue before ML 2008-38 as the borrower and the heirs would only be required to pay $200K for the house. ML 200-38 is the first time ever put that interpretation on nonrecourse as to a HECM in writing although some HUD staff was talking about that kind of revised (in most of our minds) definition as early as 2006.

    • paula_hudsonviewrealtydotcom,

      As to the HECM nonrecourse issue, the current position of HUD is found in Mortgagee Letter 2008-38. It requires that for a borrower or heir to keep the home at loan termination, he/she/they must pay off the loan in full no matter what the appraised or market value of the property. That means if the house is worth $200K and the balance due is $500K, they must pay $500K to keep the house. If he/she/they sell or walk away from the property they will not owe anything else.

      So how can a borrower justify paying $500K for a home which an unrelated buyer would only pay $200K. That is the trouble with ML 2008-38. Most of us had explained the nonrecourse issue before ML 2008-38 as the borrower and the heirs would only be required to pay $200K for the house. ML 200-38 is the first time ever put that interpretation on nonrecourse as to a HECM in writing although some HUD staff was talking about that kind of revised (in most of our minds) definition as early as 2006.

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