Atare Agbamu is a Reverse Mortgage veteran who has recently discovered that there is a problem in a recent mortgagee letter that limits the non-recourse aspect of a Reverse Mortgages to sales only.
What this means is that HUD and everyone in the Reverse Mortgage business have been saying that Reverse Mortgages are non-recourse loans for many years. This was interpreted as the fact that when the loan terminates because of sale or after the death of the last borrower, the lender would accept whatever the home is worth, even if the loan balance is higher.
A slight change in the law last year is causing some problems because HUD now interprets the law as only applying when the property is sold, either by the borrower or by their heirs. What this means is that if the borowers pass away and the heirs choose to keep the home and want to pay off the loan, they WILL be responsible for the loan balance even if that is more than the home is worth.
Now this only happens in a very small percentage of cases because most heirs sell the property and will have no problem. However Mr. Agbamu is rightfully very upset by the change. His main points are that HUD has, for years, touted the non-recourse feature and that now the change in the law will probably cost HUD money because HUD will be forced to purchase the home in cases where the heirs wanted to keep it and pay only the market value. His points are excellent because no one is going to pay HUD or anyone more than the property is worth anyway. If the heirs want to stay in the home, they should be treated no worse than soem outside buyer.
Mr. Agbamu's blog post about this can be found at:
http://www.thinkreverse.com/?p=91#respond
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