Enjoy access to a free NMLS renewal class when you attend an in-person event.
It all came down to the meaning of fourteen words.
The merits hearing in the non-borrowing spouses’ case against HUD—the hearing HUD tried and failed to kill from the start by challenging the spouses’ standing—boiled down to the meaning of a 14-word sentence Congress dropped into a 99-word subsection of HECM law.
There was no doubt Congress wanted HECM homeowners protected from displacement; the heading of the subsection made that clear. That Congress also wanted homeowners’ spouses shielded from the streets came through from the 14-word sentence. What was in dispute waswhich spouses Congress meant: Were they spouses who signed the loan papers as co-borrowers or spouses who did not sign and were removed from title thus becoming non-borrowing spouses?
From the 14 words, the spouses claimed HUD failed to protect them by issuing regulations which covered only spouses who signed the reverse-mortgage contract. From the 14 words, HUD argued it “properly applied” the subsection in its regulations. From the 14 words, armies of lawyers on both sides of the case concocted opposing meanings and, in the process, produced thousands of words in legal briefs, motions, and memoranda.
Fourteen words. Fourteen ordinary English words which assumed extraordinary importance in a court battle destined to change HECM and strengthen protections for older consumers who use the government-insured retirement mortgage across the U.S.
Let’s review Subsection J of HECM law with special attention to the 14-word sentence at the heart of the merits-hearing:
(j) Safeguard to prevent displacement of homeowner
The Secretary may not insure a home equity conversion mortgage under this section unless such mortgage provides that the homeowner’s obligation to satisfy the loan obligation is deferred until the homeowner’s death, the sale of the home, or the occurrence of other events specified in regulations of the Secretary. For purposes of this subsection, the term ”homeowner” includes the spouse of a homeowner ...
The spouses argued that those 14 words covered them whether or not they signed the mortgage contracts as borrowers. HUD countered that the 14 words include only spouses who signed the loan papers. It claimed that to accept the spouses’ generous interpretation of the 14 words would bring financial trouble to the HECM insurance program.
Earlier at the DC Circuit during the standing appeal, the judges had expressed surprise at HUD’s take on those 14 words: “The issue on appeal is limited to appellants’ standing. But we admit to being somewhat puzzled as to how HUD can justify a regulation that seems contrary to the governing statute.”
Now at the merits-hearing, U S District Judge Ellen Segal Huvelle, the same judge who had dismissed the case for “lack of standing” in July and in September 2011, took HUD’s argument apart one by one and came to a decision: HUD’s regulation violated Subsection J of HECM law. The judge ordered HUD to come up with a solution (or relief) for the spouses.
On the merits of their case, the non-borrowing spouses, Robert Bennett of Maryland and Leila Joseph of New York, won. It was a victory that seemed improbable only two years before when they were denied standing to sue HUD by the same court and by the same judge. Because of their struggle, HECM now protects non-borrowing spouses for the first time in 25 years.
Our next post looks at solutions HUD has come up with since the merits decision.
Atare Agbamu is author of Think Reverse! With more than 200 articles on reverse mortgages in circulation since 2002, Agbamu wrote Forward on Reverse, the first regular monthly column on reverse mortgages in America’s financial media from 2002 to 2011. Through his advisory, ThinkReverse LLC, Agbamu advises financial professionals, institutions, and regulators across the country.