Industry Hopes HUD and AARP Lawsuit is Resolved Out of Court

When AARP decided to go after the Department of Housing and Urban Development over changes made to the HECM program, media outlets took notice. For weeks, the story was reported around the country and now that things have calmed down, the reverse mortgage industry hopes it can bring AARP and HUD together to find a resolution, outside of the court room.

“NRMLA is going to move to [pursue] a resolution out of court that puts the program back on full non-recourse footing,” said James Brodsky, of Weiner, Brodsky, Sidman, Kider during a panel at the National Reverse Mortgage Lenders Association conference earlier this month.

In order for that to happen, HUD would need to adjust guidance published in 2008 that clarified its position on the HECM program’s non-recourse policy. As it stands, HUD’s policy states that in any circumstance where a mortgagee agrees to the acceptance of less than the full mortgage balance, such sale of the property by the borrower (or the borrower’s estate) should be an arm’s length transaction.

In the lawsuit, AARP alleges that the position abandons HUD’s long-established policy that a borrower or heirs would never owe more than the home was worth at the time of repayment.

The Coalition for Independent Seniors, a public policy coalition dedicated to preserving the opportunity for seniors to live financially independent lives told RMD it hopes the situation can be resolved outside of court.

“We are extremely sympathetic to some, but not all, of their arguments and would have greatly preferred that these matters be settled without litigation,” said Jeff Lewis, leader behind the Coalition and chairman of Generation Mortgage.

If the case ends up going to court, a formal process must be followed and it can be fairly elongated, said Jim Milano, general counsel for NRMLA, during the conference.

“It’s a challenging set of circumstances and not the kind of lawsuit that will stay quiet,” he said. “The NRMLA approach is to see if there can be an out-of-court resolution, which would be highly desirable.”

No one knows exactly what will happen as a result of the lawsuit, but it could push HUD to make changes to the program. Peter Bell, president of NRMLA told attendees in California that one potential outcome could be that HUD no longer allows people to be removed from title.

“We recognize it will knock some volume out of the industry, but that might be the resolution that is needed,” he said.

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