Atare Agbamu has been very vocal about the way HUD updated its non-recourse policy with Mortgagee Letter 2008-38 and he follows it up with An Assault on Fairness: Quash Mortgagee Letter 2008-38, part 1. After asking HUD to revoke Mortgagee Letter 2008-38, Agbamu received emails from senior policy employees at HUD and below is a copy of one of them:
Yes, well, I would agree that it’s of concern that we’ve closed the one loophole that existed – that is, heirs could BUY the properties from the estate to keep the home, but not pay off the full loan balance. Other than that, you’re actually offering up some inaccurate statements about the program’s history.
Although many people SAID, “Neither the borrower nor the heirs will ever owe more than the value of the home,” that’s an inaccurate statement on their part and our guidance has never said as much. Our policy position has always been: UPON SALE, the borrower or heirs will not owe more than the value . . . This distinction is VERY clear in our regulations. So the ML does not represent any change in policy position on this matter. Therefore, the ML [2008-38] that has been charged is appropriate and consistent with historical policy. AND, the definition of non-recourse IS just as we said it was – so that doesn’t represent a change.
So, the only change presented in this new ML is that that the heirs can’t buy the property from the estate to avoid paying off the full loan balance.”
Agbamu takes issue with the comment about how many people said “Neither the borrower nor the heirs will owe more than the value of the home,” which HUD says is an inaccurate statement and its guidance has never said as much. If you take a look at the language of chapter 1, paragraph 3C (1-3C) of the HUD HECM Handbook 4235.1 Rev.-1 which defines “non-recourse” it reads:
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 the value of the property, whichever is less; and no assets other than the home must be used to repay the debt.
So if it’s an inaccurate statement, why has it taken HUD 20 years to clear up the misinterpretation of its non recourse policy?
Some of the industry’s largest public resources like Fannie Mae and the National Reverse Mortgage Lenders Association must of misinterpreted it as well. He points to a Fannie Mae consumer education Q&A posted in August 2004 which reads:
Q: Will my heirs owe anything to the mortgage lender if I die?
A: Upon your death, the loan balance, consisting of payments made to you or on your behalf plus accrued interest, becomes due and payable. Your heirs may repay the loan balance by selling the home or by paying off the HECM loan so that they may keep the home. If the loan balance exceeds the value of your property, your heirs will owe no more than the value of the property. FHA insurance will cover any balance due the lender. No additional financial claims may be made against your heirs or estate.
Next he points to the consumer safeguards section of the National Reverse Mortgage Lenders Association’s website which states:
Asset Protection. The reverse mortgage is a “non-recourse” loan. This means that the amount due can never exceed what the home is worth. Title to the home always remains with the borrower. When the loan becomes due, the lender is repaid the sum of funds advanced plus the accrued interest, but never more than the value of the house. If there is remaining value, it belongs to the homeowner or the estate.
He brings up some great points and it will be interesting to see what HUD has to say about it now.