Archive for January, 2013

Another HECM-Assignment Solution?

Monday, January 7th, 2013

 

 

In reversing a 2011 US District Court decision, the US Court of Appeals for the District of Columbia (on Friday January 4) says the US Department of Housing and Urban Development (HUD) can use its assignment powers in the HECM law to solve the nonborrowing-spouse foreclosure problems that have dogged HUD and reverse-mortgage lenders since at least 2011.

According to the court, it is HUD’s statutory ability to solve the foreclosure problems through its assignment powers that gives the appellants standing to sue HUD. The lower federal court had dismissed the case against HUD in July 2011 for “lack of standing.”

Relying on arguments made in AARP’s brief for the appellants (surviving nonborrowing spouses), the court’s suggestion could provide a path toward resolution, assuming HUD accepts it. As indicated in the 13-page ruling, upon the death of a borrowing spouse with a surviving nonborrowing spouse, a lender could assign the loan to HUD and let HUD decide whether or not to foreclose on the surviving nonborrowing spouse.

Under existing HUD rules, reverse-mortgage lenders can assign a loan to HUD  when the loan balance reaches 98 percent of HUD’s Maximum Claim Amount (the amount for which HUD will insure a HECM reverse-mortgage loan), protecting them against crossover risk (the chance that the loan balance will exceed the home value when the loan is due for repayment), the central risk in reverse-mortgage lending.

Unquestionably, HUD has some decisions to make to address this long-standing issue and to remove the risks it poses to nonborrowing spouses and to the HECM program.

 

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