A California financial adviser charges in a lawsuit that the Department of Housing and Urban Development has acted "James Bond-like," brandishing a "license to kill" businesses and their reputations.
A recent HUD letter to lenders that make reverse mortgage loans has "nullified plantiff's rights to conduct a lawful business," charges Patriot Inc., an adviser in San Juan Capistrano.
In addition, the complaint says, the March 17 letter-signed by Nicolas Retsinas, assistant secretary of housing-is an abuse of agency discretion.
The suit was filed in U.S. District Court in Washington.
Letters like Mr. Retsinas', known as mortgagee letters, generally serve to notify lenders of an urgent issue.
The March 17 letter instructed mortgage lenders to discontinue funding any reverse mortgages referred by estate planners. Some planners, HUD found, were charging seniors fees of up to 10% of the loan's value.
Patriot's complaint, filed last week, resulted in a temporary restraining order against HUD and Fannie Mae. The order instructed them to keep insuring and buying reverse mortgage loans referred by estate planners.
An April 9 court date has been set to resolve the issue.
"The issue before the court is whether HUD can issue a blanket rule that everyone providing such services is by definition engaged in improper practices," said Andrew Sandler, a lawyer with Skadden, Arps, Slate, Meagher & Flom in Washington. He is not involved in the suit.
Howard Glaser, HUD general counsel, said barring estate planners entirely from receiving fees for referring seniors to reverse-mortgage lenders was never the department's.
But the March 17 letter HUD sent to lenders that make these loans states:
"Effective immediately, the FHA will no longer insure reverse mortgages obtained with the assistance of estate planning services. This new business policy is designed to halt any business dealings you have with these nonlenders in making HUD reverse mortgages."
Mr. Glaser said that when the restraining order was filed, HUD was already drafting a second mortgagee letter to clarify its position.
The Patriot complaint alleges that HUD acted improperly by not providing advisers with a chance to explain their position. But Mr. Glaser said HUD had to act fast because the reverse-mortgage market is a "fast-moving private sector."
"Every day, senior citizens are being scammed," he added.
The Mortgage Bankers Association of America and the American Association of Retired Persons have filed amicus briefs with the district court in support of HUD's actions.
