Court to HUD: Fix Non-borrowing Spouse Problem!

October 21st, 2013



On the eve of the partial shutdown of the US federal government, a unit of the government, the U.S. District Court for the District of Columbia handed down a decision in favor of non-borrowing spouses who sued HUD, challenging its interpretation of “homeowner” in HECM reverse mortgage transactions and claiming that federal law protects them from displacement upon the death of their “borrowing” spouses.

As I have argued elsewhere, HUD can and should solve the problem once and for all. The DC Circuit Court told HUD the same thing in January in a decision granting the non-borrowing “standing.” The September 30 U.S. District Court decision came with a separate order to HUD: Fix the non-borrowing spouse problem!

Some have suggested that HUD could appeal and delay fixing the problem, but I doubt HUD would take such a step for three reasons: 1) The DC Circuit Court did not buy HUD’s arguments in January when it granted the plaintiffs standing; 2) The  appeals court, the same court that HUD would appeal to if it were poorly advised, made it clear that HUD can and should solve the problem; it even offered some ideas for resolution; 3) The District Court’s decision on September 30 essentially said the same thing: HUD should solve the problem.

One federal court suggested that HUD should solve the problem. Another has ordered it to do the same thing.


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August 3rd, 2013

The Senate’s passage of the Reverse Mortgage Stabilization Act on July 29 now leaves no doubt that a new HECM reverse mortgage will come in October.

Why are the changes coming?  What kind of changes can borrowers, lenders, and investors expect? How will these changes affect seniors, HECM, and the reverse mortgage industry in America? What should reverse mortgage originators be doing to stay ahead of the pack? What are community resources, and how important are they going to be in the new HECM arena? What is ATSAH underwriting, and how vital is it going to be to the emerging HECM? My take on these changes and more are on pages 24 and 25 of the July-August issue of Reverse Mortgage Magazine. Tell me what you think.


Copyright (c) 2013, ThinkReverse LLC. All Rights Reserved.

Unbalanced and Inaccurate

April 5th, 2013


Carole Fleck’s piece  on reverse mortgages in April 2013 AARP Bulletin is interesting if misleading in two important areas. For example, the suggestion that lender/broker “non-disclosure” of tax and insurance default risks is the cause of HUD’s tax and insurance default problems is a stretch;the causes are more complex. HUD and the actuarial experts who check its insurance books know that.

Borrowers get mandatory pre-lending counseling from federal-government-approved counselors who are required to disclose all risks. In additional, loan originators (lenders/correspondents/brokers) must make the same disclosures and borrowers must sign papers saying that they have received these warnings. Borrowers get to take these disclosures home for extra review for weeks, even months before loan closing.

Also, the sidebar “What You Should Know” should have mentioned that a low-cost/low-payout reverse-mortgage option (the HECM Saver) has been on the market since 2010. It is unfair and misleading to use the Standard HECM reverse-mortgage insurance premium (without mentioning the real benefits of the premium) to illustrate reverse-mortgage costs in 2013 when a low-cost option is available.

Because articles in AARP publications carry weight with seniors and others, balance and accuracy are important.


Copyright (c) 2013, ThinkReverse LLC. All Rights Reserved.

Another HECM-Assignment Solution?

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.


Copyright (c) 2013, ThinkReverse LLC. All Rights Reserved.


Smart Regulations

October 6th, 2012



A regulation is a double-edged sword in any sphere of life, especially in business. Smart regulations can save a business and its stakeholders, and dumb regulations can kill them.

That is why, like Barack Obama on wars, I believe in smart regulations. So what is the difference between smart and dumb regulations? Like wars, it is evidence. Just as it is dumb to fight wars without evidence that we are fighting the right enemy, it is dumb to regulate business (or any other activity) without evidence that regulation is needed.

Let’s look at it this way: When an oncologist prescribes chemo for a patient without cancer cells (evidence), that oncologist deserves to be stripped of his medical license and sent to jail for murder and malpractice. As a society we would not tolerate oncological medicine without evidence, and we should not do that in other businesses because dumb regulations crush good businesses.

Of course if there is evidence of harmful and illegical business, enforcement and regulations (a.k.a. chemo)  should be forcefully applied to those socially harmful and illegal businesses (cancer cells).

For America’s nascent reverse mortgage industry  (it is only 23 years old; though the first reverse mortgage in the U.S. was done in 1961) and the millions of older consumers who will need its essential services, there is evidence that over-regulation (and the prospect of more regulations) is taking us in the path of dumb regulations. In the last year or so, major lenders — Bank of America, Wells Fargo, Metlife Bank, Financial Freedom and others — have left the industry. Whatever you may think of lenders and the business of lending, that is not good for consumers. Why? Because consumers and producers of reverse-mortgage credit are joined at the hip.

And Congress knew that. That is why one of the purposes of the industry’s foundation law is to encourage lenders. Only smart regulations can spur lenders.

For more on what dumb regulations can do to an industry, read my column in Reverse Mortgage Magazine.


Copyright (c) 2012, ThinkReverse LLC. All Rights Reserved.

LIBOR Rate-fixing Scandal and Reverse Mortgages

July 15th, 2012



The ongoing LIBOR (or London interbank offered rate) rate-fixing scandal involving Barclays and other big global banks raises reverse-mortgage rates concerns because since 2007 when FHA approved LIBOR for HECM reverse mortgages (Mortgagee Letter 2007-13), the LIBOR index has practically cannibalized the CMT (Constant Maturity Treasury) index, the original HECM index.

The cannibalization of the CMT index was  market-driven: investors borrow mostly via LIBOR, so it makes business sense for them to invest in (or to buy) LIBOR-denominated assets. If the LIBOR index is vulnerable to big-banks manipulation as has been alleged, it is possible that the index on which billions of reverse mortgage loans and securities have been anchored since 2007 is tainted.

What is the extent of financial harm to older Americans who have taken LIBOR-indexed reverse mortgages since 2007? The CFPB’s Office of Older Americans, HUD, AARP, and consumer advocates should put their researchers to work.

And here are some other questions: Beyond the enforcement and restitution processes, how can the LIBOR index regain consumer and investor trust? What are some possible ways to prevent future rate-fixings of the kind alleged in the LIBOR scandal?  Besides hefty fines, what other penalties should the perpetrators face?

This could well be the grandmother of financial scandals.


Copyright (c) 2012, ThinkReverse LLC. All Rights Reserved.


HECM Lenders at Risk

April 20th, 2012


The Consumer Finance Protection Bureau (CFPB) is gearing up to enforce the nation’s equal credit laws, and reverse mortgage lenders could be in  line of regulatory fire without uniform HECM needs-assessment guidelines from the US Department of Housing and Urban Development (HUD).

In the absence of uniform rules from HUD (HECM’s creator, insurer, and police), present every-lender-to-itself “financial assessment” is an invitation to claims of discrimination, regulatory headaches, and bad press for lenders and the industry.

As demonstrated by industry financial-assessment initiatives since last November, reverse mortgage lenders want to do the right thing , but they need to know what that “right thing” is from HUD. For more than 22 years, “financial assessment” was not part of the reverse mortgage origination process. Persistent and growing tax and insurance defaults have changed that. Some form of loan-sustainability assessment is now necessary for the good of borrowers, lenders, investors, and US taxpayers.

As I argued in my new column in NRMLA’s Reverse Mortgage Magazine (May-June 2012 issue), whole-person assessment guidelines are needed. With CFPB ready to enforce federal equal credit laws, absence of uniform rules that only HUD can propose could hurt lenders and the industry.


Copyright (c) 2012, ThinkReverse LLC. All Rights Reserved.



Protect Nonborrowing Spouses

February 20th, 2012


When non-borrowing spouses are subject to displacement upon their borrowing spouses’ death, the reputation of reverse mortgage products and the industry suffers. That is why  it is good business for HUD and industry to find creative and humane ways to solve this structural problem.

Reverse mortgages have proven their worth in the lives of older American home-equity-rich homeowners who need extra cash to supplement their retirement income.  In a 2007 AARP-sponsored national survey of actual borrowers, a majority credit reverse mortgages with:

* Giving them peace of mind, 94 percent;

*  Helping them have a more comfortable lifestyle, 89 percent;

*  Giving them improved quality of life, 87 percent, and

*  Helping them remain at home, 79 percent.

It is noteworthy that the study was conducted at a time of presumed and actual excesses in mortgage lending  in this country.

Non-borrowing spouses are influential points of influence in reverse-mortgage borrowing decisions. Because of life-expectancy and demographic realities, they are mostly women, giving the problem a disturbing gender flavor.  Products that are perceived as structurally hostile to non-borrowing spouses who are generally women are  unlikely to enjoy broad support, putting a damper on growth.

Although the Federal District Court for the District of Columbia dismissed Bennett et al v. Donovan last July, it may not be over. The raw human anguish and the legal issues raised in the case are still with us. Read more.



Copyright (c) 2012, ThinkReverse LLC. All Rights Reserved.


Failure to Protect: The Case against HUD, part 5

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?


Copyright (c) 2011, ThinkReverse LLC. All Rights Reserved.

Failure to Protect: The Case against HUD, part 4

August 20th, 2011

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.


Copyright (c) 2011, ThinkReverse LLC. All Rights Reserved.