In December of last year, I wrote a blog post about two topics that could have serious repercussions for this industry. The first one dealt with HUD’s clarification about the eponymous non-recourse concept and how it should be described and used in practice. This article decried the manner in which this clarification was reached and looked at some concomitant “upside down” results. The second topic dealt with HUD’s foreclosure policy. This topic will not be discussed below. This policy also needs a second look in view of existing real estate realities. This blog post can be viewed here.
Since the birth of this industry, a non-recourse loan was meant to convey security to the borrower and the borrowers’ family. Accordingly, if the value of the home was less than the current outstanding balance of the loan, the borrower or the family member only had to pay back the lesser of the home value or outstanding balance.
This non-recourse concept was one of the first things that were highlighted, as a distinguishing feature, when teaching new recruits. As more and more loan officers and companies migrated to this field, the now repudiated error was repeated many hundreds of thousands of times; millions of times if you count the prospects that have decided not to obtain one.
Accordingly, it would be only natural for loan officers and HUD counselors to repeat this concept as originally taught; and borrowers and their families expected to be able to keep the home in the family by paying the lesser amount as above noted. Atarte Agbamu, in his article (Grandma Rita’s Heirs and the 20 Year Mistake) in the February edition of The Reverse Review, artfully uses the vehicle of story to illustrate the devastating effect of such a correction coming 20 years after the fact. He calls this a “mistake”. I call it a trap. Just as the current economic crisis has steamrolled over everyone, the current disparate treatment of this concept by HUD likewise has steamrolled over everyone in the reverse mortgage industry. Can an industry wide public relations disaster be far behind? Can the ire of disgruntled family members be assuaged? If you read it already, it may not be a bad idea to read it again.