Skip to main content

Beyond ML 2008-38: The 800-Pound Can of Worms

Apr 07, 2011

After more than two years of single-handedly urging U.S. Department of Housing & Urban Development (HUD) to revoke Mortgagee Letter 2008-38, it finally listened, under legal and political pressure. HUD issued Mortgagee Letter 2011-16 on Tuesday, April 5, 2011, rescinding the odious Mortgagee Letter 2008-38 (Dec. 5, 2008), the cause of ongoing litigation brought by a widower and two widows (the “AARP case” March 8, 2011), among hundreds of seniors across the America who have been recklessly hurt by the application of ML 2008-38 as alleged in the federal lawsuit. Besides being two years late, Mortgagee Letter 2011-16 is a clumsy legal maneuver as well as an admission that Mortgagee Letter 2008-38 was (and is) a colossal mistake that has injured seniors and exposed lenders, servicers, and HUD (taxpayers) to potentially huge legal, financial and reputational risks. I say “clumsy legal maneuver” because while it may have been issued to blunt the AARP lawsuit, it actually buttresses the case against HUD. More troubling, in rescinding ML 2008-38, HUD leaves HECM non-recourse policy in doubt, putting seniors, counselors, and lenders in regulatory limbo on a crucial issue in the nation’s reverse mortgage industry. The 800-pound can of worms in the “AARP case”—HUD’s almost 22-year scandalous failure to protect non-borrowing spouses in HECM transactions by willfully and arrogantly refusing to implement the anti-displacement provision of the HECM Statute—is not going away. It has the potential to become the grandmother of all legal and financial exposure for HUD and lenders, thanks to the superior legal minds at HUD who substituted their bureaucratic judgment for a clear federal law. I believe the non-implementation of the anti-displacement law, Mortgagee Letters 2008-38, 2006-25, 2011-16, and other HECM policy letters call into question the judgment and competence of some of the legal counsel at HUD. The best risk-management decision Secretary Shaun Donovan and Acting FHA Commissioner Robert Ryan can make today is to clean house at the highest level of HUD’s servicing and legal departments. Atare E. Agbamu is author of Think Reverse! and more than 140 articles on reverse mortgages. Since 2002, he writes the nationally-distributed column, “Forward on Reverse.” A former director of reverse mortgages at Minneapolis-based AdvisorNet Mortgage LLC, Agbamu has years of hands-on experience marketing and originating reverse mortgages. Through his advisory, ThinkReverse LLC, Agbamu advises financial professionals, institutions and regulators across the country. In a 2007 national report on reverse mortgages, AARP cited Agbamu’s work. He can be reached by phone at (612) 203-9434 and e-mail at [email protected].
About the author
Apr 07, 2011
In Wake Of NAR Settlement, Dual Licensing Carries RESPA, Steering Risks

With the NAR settlement pending approval, lenders hot to hire buyers' agents ought to closely consider all the risks.

A California CRA Law Undercuts Itself

Who pays when compliance costs increase? Borrowers.

CFPB Weighs Title Insurance Changes

The agency considers a proposal that would prevent home lenders from passing on title insurance costs to home buyers.

Fannie Mae Weeds Out "Prohibited or Subjective" Appraisal Language

The overall occurrence rate for these violations has gone down, Fannie Mae reports.

Arizona Bans NTRAPS, Following Other States

ALTA on a war path to ban the "predatory practice of filing unfair real estate fee agreements in property records."

Kentucky Legislature Passes Bill Banning NTRAPS

The new law prohibits the recording of NTRAPS in property records, creates penalties if NTRAPS are recorded, and provides for the removal of NTRAPS currently in place.