• 19
  • March
    2011

Last week, the AARP sued the Housing and Urban Development Department because reverse mortgages are leading to foreclosure for some widows and widowers. The New York Times recently published an article by Ron Lieber that discusses the AARP's lawsuit, how reverse mortgages work, HUD's rules and the potential pitfalls of the reverse mortgage.

According to Lieber, AARP argues in its lawsuit that some lenders encouraged only an older spouse to put their name on the reverse mortgage loan application because it would result in a bigger loan.

The problem is that HUD issued a "clarification" (AARP claims in its lawsuit that it's a rule change) to the reverse mortgage rules in 2008 that say that an heir to a property has to pay off the mortgage balance if they want to stay in the home after the person whose name was on the loan dies. This is true even if the value of the property is lower than than remaining mortgage balance.

This is an unintended consequence of a product meant to help older people who are struggling financially day-to-day, but have a lot of equity in their home. Lieber recommends that people thoroughly research reverse mortgages before applying for one, especially because it may be the remaining asset a couple has.

Source:

A Red Flag on Reverse Mortgages (The New York Times)