AARP’s HECM Solution Would Produce an “Obviously Absurd Result”

In the Department of Housing and Urban Development’s most recent reply in support of HUD’s motion to dismiss a lawsuit filed by AARP against HUD, the department says it will not assume losses on an unknown number of loans for indefinite periods of time. Among other arguments, it says it does not have authority to alter contracts between lenders and borrowers, and that AARP’s suggestion to open the repayment obligation to any HECM successors would lead to an “absurd” result.

The reply document does not address the issue in the lawsuit regarding HUD’s non-recourse policy, over which it rescinded guidance earlier this year, but has yet to issue new guidance.

The response follows a decision from AARP to proceed in the lawsuit against HUD, in which three plaintiffs allege they face unjust foreclosures as a result of HUD policy regarding reverse mortgages. AARP has urged HUD to allow spouses of reverse mortgage borrowers, even those who are not on the home title and are not named in the reverse mortgage, to assume the loans once a borrower has passed away or has moved out of the home. In a footnote to HUD’s memorandum in support of its motion to dismiss the suit, HUD says while lenders are generally willing to accede to HUD’s requests to halt foreclosures because HUD, as in insurer of the loans, pays currently accruing interest on the loan in default, the department is not willing to assume all losses on loans similar to the ones taken by the plaintiffs.

“It is one thing for HUD to voluntarily assume losses associated with delaying foreclosures for three Plaintiffs for a short period so that the Parties have an opportunity to fully explain the issues before the Court needs to rule,” HUD writes in the document. “It is quite another for HUD to assume losses on an unknown number of loans for indefinite periods of time (that could be decades).”

Further, HUD writes, “Plaintiffs can only seek to remedy their own injuries; they cannot raise the rights of third parties, particularly unidentified, and unidentifiable, future borrowersand/or their spouses.”

In response to the suggestion by AARP that successors of borrowers be entitled to assume reverse mortgage loans even when they are not on the title and not on the mortgage, HUD presents a hypothetical to demonstrate what it calls an absurd result.

“Plaintiffs’ suggestion that the repayment obligation should be deferred for the lifetime of any successors and assigns of the borrower would produce an obviously absurd result,” HUD writes. “What if a homeowner’s successor was his five-year-old granddaughter? What if his assign was a charitable organization? Under Plaintiffs’ theory HECM mortgages might never become payable.”

Written by Elizabeth Ecker

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