High-cost Interpretations
HUD is a protector of consumers in the nation’s housing markets, yet it has been accused of failing to protect non-borrowing spouses in HECM reverse mortgage transactions in a recently dismissed federal case, Bennett et al v. Donovan, the so-called ‘AARP lawsuit.’
How did HUD get this stain on its reputation? There are several explanations but we focus on one: HUD’s interpretation of the word “homeowner.”
HUD’s interpretation says a homeowner in HECM reverse mortgages must be 62 and must be the person(s) who signed the mortgage note.
The plaintiffs — Robert Bennett, Delores Moore, and Leila Joseph — say a homeowner is the person who signs the mortgage note and their spouse, whether the spouse signed the loan papers or not.
Both definitions of HECM homeowner are found in the federal laws which govern the program. This is a new ground in reverse mortgages in this country. So whose definition of homeowner is correct?
HUD believes its interpretation is the correct one because it is the only interpretation that meets the twin goals of the program — more cash for seniors and safety of the federal insurance fund that makes HECM lending possible. It argues that the opposing interpretation will kill the program for all seniors and create financial losses for HUD and taxpayers.
Meanwhile, plaintiffs’ lawyers say “hundreds” of seniors across the country, in situations similar to the plaintiffs, have suffered foreclosures and evictions from their marital homes. And the harvest of litigation and bad publicity for reverse mortgages, an otherwise beneficial product for seniors to use their home equity to support their retirement income, may not be over.
So how did HUD the protector become HUD the tormentor of non-borrowing spouses in HECM reverse mortgages? It is by crafting and sticking with an interpretation of homeowner that excludes the non-borrowing spouse.
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