Reverse mortgages are suppose to help elderly homeowners keep their home while maintaining their lifestyle but the AARP filed a lawsuit against the Department of Housing and Urban Development which says that the recent changes made to reverse mortgages are pushing elderly homeowners into foreclosure.
“HUD has illegally and without notice changed the rules in the middle of the game at the expense of vulnerable older people,” said Jean Constantine-Davis, an AARP Foundation senior lawyer.
The lawsuit focuses on reverse mortgages where only one spouse signed the loan document. It argues that HUD shifted course in late 2008, making changes in its procedures so that surviving spouses who are not named on the mortgage must pay the full loan balance to keep the home, even if the property is worth less.
The rules which were changed made it possible for reverse mortgage lenders to demand full payment of an outstanding loan once the spouse who signed the loan died. Spouses who lived in the same house for as long as 30 years suddenly found themselves facing foreclosure because they weren’t able to pay the full amount of the mortgage upon demand.
The suit also accuses HUD of making policy changes that allow underwater homes with reverse mortgages to be sold to strangers in arm’s-length transactions for less than the full mortgage balance, but that require spouses or heirs to pay the full amount. Finally, the suit says HUD is ignoring its own provisions against displacing a surviving spouse.
The lawsuit focuses on three spouses who are facing foreclosure because of a reverse mortgage; but AARP says that there could be thousands of elderly in the say position. If these allegations are found to be true, it means that the new rules for reverse mortgages could be creating a new tsunami of elder foreclosures.
(source: http://www.nytimes.com/2011/03/09/business/09mortgage.html/?src=ISMR_HP_LO_MST_FB )