Reverse mortgages, through heavy advertising on TV, have become quite popular in the past few years; but they fail to disclose that reverse mortgages can take a bite out of your assets. Just as any other type of loan, there are pitfalls and dangers to the uninformed. That’s why anyone considering a reverse mortgage should thoroughly investigate the product being offered and make certain that they fully understand all the “fine print.”
Just this week AARP filed a lawsuit against HUD over reverse mortgage problems that had ultimately placed homeowners at risk of foreclosure. And an article in the NY Times cautions potential borrowers to pay close attention during the application process, and to be aware of the risk when both spouses’ names are not on the documents.
It seems that a HUD “clarification,” or what the AARP lawsuit describes as a “rule change,” resulted in widowed spouses who did not sign the original loan documents being forced to quickly pay the full balance of the loan, regardless of value of the property or their ability to do so. Those who fail to comply, according to the HUD rules, are subject to foreclosure. Those considering a reverse mortgage should visit the HUD webpage that describes them in detail.
The recent problems have come as a shock to borrowers who originally sought a reverse mortgage to alleviate financial strain in their budgets, as the HUD rules appear to create results opposite to the program’s original intent. Under several scenarios it’s possible for reverse mortgage borrowers to benefit from having only one name on the documents; and if one of the spouses is younger than 62, it’s a requirement. But such arrangements could leave a surviving spouse at risk of having to repay a loan balance greater than their home is worth, and with the possibility of being forced out of their home.
Contrary to the TV ads, reverse mortgages are not a panacea without downside risk; they should be considered a last resort for those who need to tap the equity in their home. Additionally, reverse mortgages are costly and endanger those who fail to thoroughly review and understand their consequences. However, when there seem to be no other options, borrowers should seek the advice of a reverse mortgage counselor and should ask questions pertaining to their particular financial circumstances.
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