Back in time: HUD rolls back 2008 non-recourse letter

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1 comment

James E. Veale, CPA, MBT April 11, 2011 at 1:08 pm

In reading Mortgagee Letter (“ML”) 2011-16, it was very surprising to read: “HUD is rescinding ML 2008-38.” What is important is that HUD never states in ML 2011-16 that it is rescinding its position on non-recourse as stated in ML 2008-38, only that it is rescinding ML 2008-38 itself. Reading on in ML 2011-16, HUD makes it abundantly clear we will not have guidance on exactly what its new policy on non-recourse is or will be until LATER.

The second definition of rescind at http://www.merriam-webster.com states: “to abrogate (a contract) and restore the parties to the positions they would have occupied had there been no contract.” This definition is very close to the meaning Shannon uses and the wording many of us use when defining what rescission means in the term “three day rescission period.” So if all that has happened is that the parties have been restored “to the positions they would have occupied had there been no” ML 2008-38 is not very helpful since HUD had held the position it stated in ML 2008-38 for over 2 years prior to the issuance of ML 2008-38, dating back to 2006. Since ML 2008-38 is dated December 5, 2008, that means we are in exactly the same position we were on December 4, 2008.

On April 7th (2011) in an RMD article, John Yedinak quotes Brian Sullivan, a spokesperson for HUD, from a statement Brian gave to Bloomberg: “We recognized there was some confusion on the issue, and we wanted to make sure that the ultimate sale of the property is market-based and reflects the property’s real value.” The Bloomberg reporter writes that Brian stated that “the policy change was unrelated to the lawsuit,” undoubtedly referring to the Bennett v. Donovan case or as it is more commonly referred to in the industry, the AARP case.

What did Brian mean by “the ultimate sale of the property?” Does he mean the first sale AFTER the homeowner or heir pays off the debt or is he referring to the actual retention itself, which might or might not constitute a “sale”? Retaining the home by simply paying off the balance due is NOT a sale. This double speak was unnecessary and further clouds what it is HUD means by “non-recourse.”

Some have assumed that rescind means what Brian implies, that HUD has rescinded its twisted definition of non-recourse. I am not an attorney. I can only speak as an accountant and Senior VP at a lender who has done HECMs as a California real estate broker. All I know is that HUD has rescinded its official position in ML 2008-38 on how non-recourse applies to borrowers, heirs, and even to some degree related parties but there is no clear indication what its new position is or will be. The HUD spokesperson who spoke out on the subject only clouded the HUD position. By stating in ML 2011-16 “HUD is rescinding ML 2008-38,” it seems reasonable to conclude that no one knows what the official position of HUD is and how HUD intends to define non-recourse when it comes to borrowers and heirs (and to some degree even related parties) when they want to keep the home.

Unfortunately by how it is worded, ML 2011-16 looks more like legal maneuvering than change in policy.

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