Preventing foreclosures on some reverse mortgages

AARP, The American Association for Retired People, has filed suit against the department of Housing and Development (HUD) — which insures reverse mortgages — to stop them from foreclosing on some of the people who signed up for reverse mortgages.  AARP argues that changes in HUD policies, made after some reverse mortgage contracts were signed, are forcing people out of their homes.

If you’ve seen the TV ads, you know that the HUD Home Equity Conversion Mortgage (HECM) promises that you cannot lose your house for as long as you live in it.  In fact, that is not true.  If at any time you stop paying your homeowners insurance, or property taxes  — or if at you let the house fall into disrepair —  you are in default and the total mortgage becomes due and payable.

Not only that, but if you are part of a couple living in a house with a reverse mortgage you might have to pay off the mortgage if your partner dies.  Couples who got a reverse mortgage. but had only one partner sign off, become liable if the signing partner dies. The AARP suit is about this group.  It applies to couples where only one member signed on the mortgage.  Couples usually do that to give themselves a larger monthly payment —  or it could happen because the couple did not become a couple until after the mortgage was contracted.

In any case, the AARP argues that when this unfortunate situation occurs, the remaining partner should not be held liable for the entire mortgage if the balance of the mortgage exceeds the value of the house.  HUD has been trying to collect the full balance.  Not only that, but the suit claims that HUD has been ignoring its own provisions against evicting a surviving spouse.

Up-front costs on HUD HECM reverse mortgages run from $14,000 to $20,000 and about half of that goes to pay for insurance that covers the bank if, for any reason, the mortgagees live so long the mortgage exceeds the value of the house.  The problem is that HUD does not want to pay off on the insurance if there is a surviving spouse they can squeeze.

We’ll follow the suit and find out how it comes out.

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