Last Word: Celebrate “HECM With Dignity!”

Written by Atare E. Agbamu

The outcome of HECM policy bloodletting over the last six years calls for celebration. That is why the absence of singing and dancing and partying in the HECM industry is puzzling. What would it take to bring some joy about HECMs back into the business? Joy from issuing the safest reverse mortgages in the world, the “gold standard,” as HUD’s Edward J. Szymanoski—my friend and a key architect of the HECM 27 years ago—calls them. Joy from selling a credit product that gives older consumers the opposing values of borrowed cash and peace of mind, assuming they pay their taxes and insurance. And joy from knowing that a major financial and reputation headache, the displacement crisis of surviving non-borrowing spouses, is behind us.

The crisis had taken HECM’s reputation hostage since the litigation in 2011. It ended with FHA Chief Edward L. Golding’s decision to grant lenders access to a special assignment for loans with surviving non-borrowing spouses. For an issue that had overpowered other FHA bosses, Mortgagee Letter 2015-15 was a milestone for the industry. Many spouses who feared displacement are now rejoicing. We should rejoice with them because it is the industry’s victory too.

Mary Blevins of Cedar Hill, Texas, is one of the spouses. For years she lived in terror of displacement from the home she has shared with her husband for almost 30 years. In part, here is her reaction to ML2015-15 in an email:

“I so dreaded the thought of losing my husband and home at the same time. Truthfully, I think I would have been a total basket case. Now I feel like I can face widowhood with dignity instead of desperation. I can live here in my house while I adjust, and I can make decisions without the stress of a looming foreclosure.”

The policy letter averted looming financial and reputation crises for lenders and the HECM industry. Without access to the Mortgagee Optional Election (MOE) assignment, lenders could have been forced to kick many seniors out of their homes. That could have triggered many costly legal battles and related horror stories in the media and in social media. Now, the story is one of joy and hope, it’s about lenders helping spouses stay in their homes.

It is a compassionate story to tell, and we can borrow Blevins’ potent phrasing: “Widowhood with dignity instead of desperation,” or we can mint new ones such as: “HECM with dignity, age with HECM.” For champions of “extreme” industry rebranding, these phrases could be employed in a fresh strategic communication initiative, which should highlight the new HECM safeguards, including Financial Assessment, while stressing the importance of tax and insurance payments to protect your loan.

Let’s celebrate plaintiff and defense attorneys in the NBS litigation for their dogged four-year-plus courtroom combat. Out of their principled struggle for their clients, out of hundreds of pages of motions and counter motions, memoranda, opinions and rulings, has emerged a HECM that is as good as gold in the evolving world of home equity conversion lending.

Non-recourse, an essential HECM feature that was made conditional by rescinded Mortgagee Letter 2008-38 before the litigation, is no longer in doubt. Non-borrowing spouses, originally written out of the HECM and left unprotected from displacement for more than 25 years, have been grafted in, priced in and shielded from late-life displacement when borrowing spouses die. These are critical structural changes that have made the HECM the undisputed gold standard among reverse mortgages.

Let’s celebrate “HECM with dignity!”

  • The_Cynic

    Atare,

    It is not Mortgagee Letter (ML) 2015-15 that brings originators that much joy. It is first and foremost ML 2014-07 and then ML 2015-02 which brought clarity and thus relief to originators from uncertainty in originating new HECMs where a non-borrowing spouse is involved.

    ML 2015-02, in particular, (since it now supersedes ML 2014-07) gives stability and a written policy to what we tell seniors. The legality of ML 2015-02 is beyond reproach since it clearly qualifies under the standard of Congress found in the Reverse Mortgage Stability Act of 2013 (RMSA) and meets the prospective agency rule making requirement demanded by the federal courts.

    ML 2015-15 does not meet the prospective standard. So the only question left is whether it meets any of the exceptions to that rule? I am not an attorney but what exception applies to allow HUD to retroactively lower the benefits to non-borrowing spouses found in 12 USC 1715z-20(j)? Can ML 2015-15 be found to meet the requirement of the US Constitution found in Article 1, Section 9, Clause 3 against ex post facto law making? How is the application of ML 2015-15 anything other than ex post facto?

    Have you ever wondered why HUD did not issue MLs 2015-02 and 2015-03 as one ML? They could have but they did not. Why? Perhaps it is because HUD policy makers wanted stability as to prospective originations when it comes to the non-borrowing spouse issue and not be tied to a policy found in both ML 2015-03 and ML 2015-15 that it expected would be challenged and even overturned.

    ML 2015-15 does not address important issues such as surviving non-borrowing spouses who were not married to the borrower at the time of closing nor it does not provide greater benefits to those who were. It does not address the rights of non-borrowing spouses in situations which triggered the due and payable clause but were not from events which transferred title such as the borrower living outside of the home for more than a year. Even more importantly it does not address compensation to non-borrowing spouses (and their heirs) where HUD’s draconian and illegal position caused those spouses financial (or even physical) harm.

    I hate disagreeing with you but may ML 2015-15 die the death it so richly deserves.

    • Ata2

      The_Cynic,
      You can have the last word on this. After more than 6 years in the trenches on these issues, I am on a sabbatical. We won the good fight. It is celebration time.

      • The_Cynic

        Atare,

        I hope that is the third step in HUD doing the right thing for seniors who have been denied their legal rights. I hope to see the courts force HUD to do the right thing for all surviving and now deceased surviving non-borrowing spouses who were denied their right to not be displaced related to HECMs with case numbers assigned before August 4, 2014. The cost will be enormous but these individuals had the right to expect a government agency to act appropriately and it has in the past and continues not to respond as it should. 12 USC 1715z-20(j) is the law of the land for these particular seniors.

        To me it is far too early to celebrate for these seniors. That is until we see them receiving what is due them under the law.

        What I have been celebrating since their issuance are ML 2014-07 and ML 2015-02. We now have finality on how to handle non-borrowing spouses in all future originations.