Archive for November, 2011

Failure to Protect: The Case against HUD, part 5

Wednesday, November 9th, 2011

Why “AARP” Lawsuit Matters


There are a few reasons why Bennett et al v. Donovan, the so-called “AARP” Lawsuit, is one of this year’s most important events in U.S. reverse mortgage industry.

It is the first case of its kind. No borrowing or non-borrowing spouse has ever sued HUD, an agency of the federal government, or challenged its interpretation of HECM laws and regulations.  HUD can expect other challenges if its actions or non-actions hurt seniors who use HECM reverse mortgages.

The lawsuit raised a critical issue that has remained dormant for 22 years of the program and the industry’s history: Who is a HECM Homeowner? Because the key issues in the case were not addressed before its dismissal in July for “lack of standing,” that fundamental question will reappear, and it should be addressed either in the courts or in Congress.

Putting the plight of non-borrowing spouses on the map is a major achievement of the case. What is this plight? It is displacement of spouses from their marital homes when borrowing spouses die. Congress clearly wanted non-borrowing spouses protected; but HUD’s interpretation of the law, which, it believes, ensures the program’s actuarial survival, ruled that out.

Forcing HUD to take back the odious Mortgagee Letter 2008-38 is an important result of the lawsuit. It will take years to undo the damage the letter did to seniors, HUD, lenders, and the industry. HUD has the litigation to thank for compelling it to scrap a destructive policy. If HUD were not a federal government agency with a stranglehold on the reverse mortgage market and other mortgage insurance business, lenders could have tied it up in court for damages ML2008-38 caused them.

Although temporarily, the case pushed HUD to suspend foreclosures and evictions relating to issues raised in the lawsuit, giving many non-borrowing spouses some relief. Why do you think the case is important, or not important?


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