HUD Rescinds Reverse Mortgage Recourse Guidance Following AARP Lawsuit

A lawsuit filed by AARP against the Department of Housing and Urban Development for changes made to its reverse mortgage program is already having an impact.  On Wednesday, the agency published Mortgagee Letter 2011-16 to rescind guidance issued in 2008 to clarify its non-recourse policy on reverse mortgages insured by the Federal Housing Administration.

“Since there has been some uncertainty regarding the guidance in that ML, HUD is rescinding ML 2008-38, effective as of the date of this ML,” said Robert Ryan, Acting Assistant Secretary for the Federal Housing Administration. The Mortgagee Letter was dated April 5.

Mortgagee Letter 2008-38 stated that “the HECM borrower (or his or her estate) will never owe more than the loan balance or value of the property, whichever is less; and no assets other than the home must be used to repay the debt.” The letter further specified 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.”


In the lawsuit against HUD, AARP alleges that the agency abandoned long-established federal rules and violated protections for surviving spouses when it published the guidance.

“This does not just violate HUD rules; it violates existing contracts between reverse mortgage borrowers and lenders, and negates a key purpose for which borrowers had been paying insurance premiums,” said AARP in a statement.

According to HUD, new guidance on topics related to the regulations at 24 CFR Part 206 and Handbook 4235.1 will be issued in the future. “In the interim, mortgagees should refer to the regulations at 24 CFR Part 206 and the provisions in Handbook 4235.1 for guidance,” said Ryan.

AARP had not respond to RMD’s request for comment at press time.

View a copy of the Mortgagee Letter here.

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  • ML 2011-16 is not only confusing; it also looks disingenuous. It provides no guidance as to the official position of HUD on nonrecourse or what its view is on third party arm’s length.

    While NRMLA may have inside information on how HUD will eventually define nonrecourse, its conclusion on nonrecourse in its email this morning does not make sense based on the new ML alone. The only guidance HUD gives the reader in ML 2011-16 is that the reader should use the same HUD handbook and regulations HUD used in reaching its conclusions in ML 2008-38. Then the new ML states HUD will provide more specific guidance in a future ML.

    ML 2008-38 is the official position of HUD on what it believes the handbook and regs state. Now they are revoking it without giving us any new guidance. Why?

    ML 2011-16 is more the stuff of legal strategy in the midst of a losing lawsuit than a change in position. Was it done simply to see if the plaintiffs will drop their suit rather than pursue the non-borrowing spousal displacement issue under 12 USC 1715z-20(j)?

    ML 2011-16 is double talk. Until HUD gives us its official position on the issues presented in 2008-38, the reader should BEWARE and proceed cautiously. ML 2011-16 does not bring clarity to the issue; it simply temporarily removes any official position of HUD on the subject. Do not misrepresent what HUD believes nonrecourse means at this point in time.

    • The_Cynic,

      Wow!! I see why you use that name. While I am no attorney, it does seem the new ML leaves us in a fog.

      NRMLA is right in part and so you are. By revoking ML 2008-38, as to authorative literature we are no different today than we were in 2005; however, as to a differing position of HUD, ML 2008-38 is already out there and HUD is not saying that position was wrong.

      Who can say what HUD’s position is at this time other than they are stating they will get back to us later? Legal strategy, maybe. Lack of clarity, absolutely yes.

  • What a cop out! how can any one understand the mortgagee letter in the first place. If I was a betting man, I would say there is more to this than meets the eye.

    John A. Smaldone

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