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HUD Action Against Reverse Mortgages Halted

Housing: Judge gives O.C. firms time to resolve legal challenge to the agency's 'preemptive strike.'


Just 10 days into a "preemptive strike" on reverse mortgage schemes, federal housing officials withdrew their attack Thursday until a legal challenge by Orange County companies is resolved.

A federal judge in Washington put a temporary hold late Wednesday on a Housing and Urban Development directive that was aimed at shutting down companies that charge senior citizens fees for advice they can get free from government-approved counseling centers.

The agency asserts that 100 companies nationwide are charging up to 10% of the proceeds from reverse mortgages merely for referring people to the centers.

In the wake of the order, HUD said Thursday that it is withdrawing the directive for now.

Reverse mortgages allow cash-poor elderly people to draw on the equity in their homes without moving, while delaying repayment until they sell or die.

HUD's directive listed six offending companies by name, including America's Trust Inc. and Patriot Inc. of San Juan Capistrano and Senior Information Services of Dana Point, all run by Jeffrey G. and Peggy W. Butler.

"Patriot and the Butlers effectively had their business cut off by the HUD policy," said Washington lawyer Jed Babbin, who filed a lawsuit for the Butlers.

Patriot and America's Trust contend in the complaint that the companies provide genuine services, such as arranging repairs and termite inspections, that aren't duplicated elsewhere.

The suit accuses the government of exceeding its authority by using indirect pressure to put the companies out of business after failing to find evidence that the firms had broken any laws.

After hearing oral arguments, U.S. District Judge Harold H. Greene issued a temporary restraining order blocking the HUD policy until a further hearing April 15 at which both sides can argue the case more fully.

Greene wrote that there was "good cause shown" for his temporary order, but he didn't elaborate.

David Egner, a HUD spokesman, said he knew of no case in which a similar HUD directive was set aside, though he said court challenges to HUD actions are common and often unsuccessful.

"Clearly, it's not something that happens every day," Egner said. But he added, "We're confident our actions to protect senior citizens will be upheld."

Greene's order, he said, applies to all similar information providers, including the other three companies HUD had named: Paramount Trust & Financial Services in Oceanside, America's Financial Inc. in Las Vegas and Senior Financial Services of Washington and Alaska Inc. in Issaquah, Wash.

In its March 17 action, HUD accused the estate planning companies of charging exorbitant fees for referrals to the counseling centers. The government requires senior citizens to go to the centers before they can obtain reverse mortgages that are insured through its Federal Housing Administration.

HUD, in its directive, prevented lenders who insure loans through the FHA from dealing with the referral companies. FHA insures about half of all reverse mortgages.

Officials said they took preemptive action after only a few weeks of investigation because they wanted to halt such practices before they became widespread.

Egner said some mortgage originators had already stopped dealing with the firms on their own.

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