HUD’s Dollar-foolish HECM NBS Stand

 

 

HUD says it has “no legal authority” to help existing non-borrowing spouses (NBS) endangered by its former NBS policies in Bennett case. In response, the Bennett plaintiffs filed a new lawsuit June 16th challenging HUD’s decision and demanding a jury trial.

If HUD does not have “legal authority” to clean up its NBS mess (a dubious argument given its broad powers under Subsection 255(i) of the National Housing Act ), what about its ethical authority as a federal agency charged with protecting seniors in the HECM program? What about its moral authority as a federal agency with broad regulatory sway over the nation’s housing industry? As a department of the federal government, what about its guardian authority to do no harm to the neediest and the most vulnerable in society?

Technically called “Determination on Remand” (and filed on June 4th), the decision may have been calculated to win a legal battle, but it could cost HUD and the reverse mortgage industry the war. And here is why:

a) Foreclosures and displacements of non-borrowing spouses across the country could bring a fair amount of publicity to lenders, reverse mortgages, and HUD; it could also bring some VA-type scrutiny to the HECM program and its administrator;

b) As the new lawsuit suggests, HUD can expect more lawsuits where its regulatory laundry could come before juries and the public;

c) With allegations of fraud and misrepresentation in loan origination dogging most NBS cases, lenders (thanks to HUD) can expect more litigation in state courts as multiple foreclosure processes move along;

d) The legally-flawed interpretation of a HECM homeowner at the heart of the problem shaped NBS policy for more than 25 years, and much  damage was done; damage cannot be limited to two plaintiffs in the Bennett case, as we can see from the emerging Plunkett class action;

e) Besides NBS facing foreclosures and displacements, many spouses of HECM borrowers are expecting the same fate as soon as their borrowing spouses are buried; for a product that is supposed to bring peace-of-mind in the recreative years of life, HECM is being associated with worry and with nightmares; here is a sample email (edited) from a non-borrowing spouse in Atlanta, Georgia:

My husband took out a reverse mortgage in 2012 and I am a non- borrowing spouse.  I signed the paper acknowledging that if my husband dies before me, the mortgage is due immediately.  In other words I relinquished the rights to the property, was taken off the title, etc.  Since I was only a few years away from being 62, we did not see a problem, as I was told, I could get back on the title and do another reverse mortgage.  I have inquired on how we could refinance when I will be 62 in 2015.  When I talked with a loan person, I was told that it may take thousands of dollars we would have to come out of our pockets in order to refinance.  Now I am worried that we may not have the funds to do this. And, I will never get on this loan.

 Since then, I have researched and found out that HUD revised the policy on non- borrowing spouses and now there is protection for new loans going forward.  However, this will not help me.  I am so worried.  We did this reverse, thinking that we were saving our home and have peace of mind in our golden years.  However, this is a constant concern of ours.” 

HUD’s no-legal-authority stand on the existing NBS problem is penny-wise and dollar-foolish.

 

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