Industry Hopes HUD and AARP Lawsuit is Resolved Out of Court

When AARP decided to go after the Department of Housing and Urban Development over changes made to the HECM program, media outlets took notice. For weeks, the story was reported around the country and now that things have calmed down, the reverse mortgage industry hopes it can bring AARP and HUD together to find a resolution, outside of the court room.

“NRMLA is going to move to [pursue] a resolution out of court that puts the program back on full non-recourse footing,” said James Brodsky, of Weiner, Brodsky, Sidman, Kider during a panel at the National Reverse Mortgage Lenders Association conference earlier this month.

In order for that to happen, HUD would need to adjust guidance published in 2008 that clarified its position on the HECM program’s non-recourse policy. As it stands, HUD’s policy states that in any circumstance where a mortgagee agrees to the acceptance of less than the full mortgage balance, such sale of the property by the borrower (or the borrower’s estate) should be an arm’s length transaction.

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In the lawsuit, AARP alleges that the position abandons HUD’s long-established policy that a borrower or heirs would never owe more than the home was worth at the time of repayment.

The Coalition for Independent Seniors, a public policy coalition dedicated to preserving the opportunity for seniors to live financially independent lives told RMD it hopes the situation can be resolved outside of court.

“We are extremely sympathetic to some, but not all, of their arguments and would have greatly preferred that these matters be settled without litigation,” said Jeff Lewis, leader behind the Coalition and chairman of Generation Mortgage.

If the case ends up going to court, a formal process must be followed and it can be fairly elongated, said Jim Milano, general counsel for NRMLA, during the conference.

“It’s a challenging set of circumstances and not the kind of lawsuit that will stay quiet,” he said. “The NRMLA approach is to see if there can be an out-of-court resolution, which would be highly desirable.”

No one knows exactly what will happen as a result of the lawsuit, but it could push HUD to make changes to the program. Peter Bell, president of NRMLA told attendees in California that one potential outcome could be that HUD no longer allows people to be removed from title.

“We recognize it will knock some volume out of the industry, but that might be the resolution that is needed,” he said.

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  • This is the voice of a contrarian. Mortgagee Letter 2008-38 seems like a simple issue to settle when comparing it to the displaced spouse issue found in 12 USC 1715z-20(j).

    There are three issues related to ML 2008-38. The first is the definition of non-recourse. The second is the need to maintain safeguards to ensure that all HECM transactions are indeed held to the standard of bona fide arm’s length third party transactions. Finally there is the need to consider how to rectify those who were negatively impacted by the new definition of non-recourse either through paying more for the home than the home was worth or could not afford to obtain the home by paying off the balance due and lost the opportunity to do so.

    Please do not misunderstand. HUD has a right to provide their own definition of non-recourse as long as it fits the definition of that term as found in the statute at 15 USC 1602(bb). However, HUD should not have the right to apply that definition to HECMs closed on or before December 5, 2008.

    The ML authors were somewhat disingenuous when they wrote: “Some program participants mistakenly infer from this language that a borrower….” In fact to say all program participants outside of a very few within HUD before 2006 held the inferred interpretation described in the ML would be no exaggeration. It certainly was not just “some.” Before 2006 there was not even a hint from HUD itself that the definition was as stated in the ML. No one in the industry, not even counseling, was using the language reflected in the ML in defining non-recourse before 2006 and then only a very few from 2006 to December 5, 2008.

    Now turning to the displaced spouse issue, the position of HUD does not appear to be unreasonable if the program was to be self sustaining from its inception. But the statute does not seemed burdened by that pragmatic position. While the interpretation of legal counsel for the plaintiffs is not without merit, as a US taxpayer I support the position of HUD in this fight. Somehow Congress needs to intervene and pass clarifying legislation even if the AARP case is adjudicated in favor of HUD on the so called displaced spouse issue.

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