Archive for July, 2014

Obstacles to HECM NBS Resolution

Monday, July 7th, 2014

 

Two of the “disqualifying factors” in HUD’s June 24 “Mortgagee Optional Election” or MOE suggestion for resolving the non-borrowing spouses (NBS) problems are clear obstacles to resolution. HUD should remove them so that lenders can assign these problematic HECM loans for NBS who are facing (and those who are expecting) foreclosure and displacement.

 Among the MOE disqualifying factors, the principal limit factor (PLF) and the tax and insurance(T&I)  conditions are especially problematic.The PLF condition is retroactive and may not stand judicial scrutiny. And the T&I condition is silly because Subsection 255(j) defaults preceded the T&I defaults.  Who wants to pay T&I obligations when they are facing foreclosure and displacement? These conditions reek of bad faith given that the NBS problems derived from HUD’s own bad regulations.

Imagine General Motors telling customers who bought GM cars with faulty brakes something like this: “We are sorry our cars have caused accidents on the road as a result of our faulty brakes; we may fix your cars but you must send them to your dealers; however, we will not accept cars with odometer reading of 180,000 and above and we will not accept cars whose owners have had late car payments.”

Americans will be outraged. The media will go ballistic. GM executives will be hauled before Congress to explain their socially and morally irresponsible conditions for fixing their faulty brakes. Personal-injury lawyers will have a field day suing GM and its suppliers.

 HUD’s MOE principal limit factor and tax and insurance conditions amount to subjecting victims of its own bad regulations to unnecessary pain before accepting assignment.

In HECM’s 25-year history, HUD has accepted about 30,593 assignments as of May 31, 2014. That is just three percent of about 875,000 HECMs originated over the same period. Three percent is a very good assignment record in 25 years! So a thousand or so more Subsection-255-j assignments will not harm HUD’s MMI Fund in a strong economy.

HECM Assignments(By Assignment Accepted Date)
Year Count
1993         1
1995         2
1996         4
1997         2
1998       29
1999       66
2000      241
2001      394
2002      460
2003      504
2004      718
2005      810
2006   1,212
2007   1,875
2008   2,292
2009   2,908
2010   2,775
2011   3,158
2012   4,063
2013   5,747
2014   3,332
Total 30,593
*Data as of May 31, 2014

Source: HUD

Property values are on the rise. The economy is looking up. Jobs data keep moving up. Our European trading partners are stimulating their economies, and that is good news for our multinationals, our exports,  our jobs, and our housing. It appears  HUD might actually make money on its HECM NBS assignment portfolio at the end of the day.

 Now, contrast the potentially low financial risk of assignment in the present economy with the possibly high financial, litigation, and reputation risks lenders, HUD, and the industry run by letting the problems drag on indefinitely, and there can be just one conclusion: removing  PLF and  T&I “disqualifying factors” to assignment is a rational path to resolution of existing NBS problems.

 

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