In a first public action since taking leadership of the FHA, Acting FHA Commissioner Robert Ryan signed the Department of Housing and Urban Development's Mortgagee Letter 2011-16  rescinding Mortgagee Letter 2008-38 that clarified their interpretation of the HECM non-recourse provisions to not include non-arm's length transactions.


In rescinding ML 08-38, ML 11-16 states that the intent of the previous guidance was to "supplement and explain provisions contained in the at 24 CFR §206.125 and HUD Handbook 4235.1 (Home Equity Conversion Mortgages)."  The action is the result of "uncertainty regarding the guidance," and HUD plans to issue new guidance at some point in the future.

The debate over HUD's interpretation of the non-recourse provisions in the HECM regulations have been a source of debate since AARP first pointed out the issue in a report on reverse mortgages in 2006.  It was heightened with the clarification from ML 08-38.  This led to AARP filing a lawsuit against HUD's practices in March.

Pending further guidance, HUD refers mortgages to the regulations at 24 CFR Part 206 and the provisions in Handbook 4235.1 for guidance.

24 CFR Part 206 (8) states: The mortgagor shall have no personal liability for payment of the mortgage balance. The mortgagee shall enforce the debt only through sale of the property. The mortgagee shall not be permitted to obtain a deficiency judgment against the mortgagor if the mortgage is foreclosed.

HUD Handbook 4235.1 states:  The HECM is a “non-recourse loan”. This means that the HECM borrower (or his or her estate) will never owe more than the loan balance or value of the property, whichever is less; and no assets other than the home must be used to repay the debt.

ML 11-16 suggests that pending results of the AARP lawsuit, HUD will follow the unconditional interpretation of non-recourse providing that a borrower can never, under any circumstance, over more than the value of the home on their reverse mortgage.  However, in refering mortgagees back to the regulations, they do no explicitly state that this is the case.

Uncertainty will reign until this matter is resolved.