National Public Radio’s Marketplace ran an interview with AARP’s Jean Constantine-Davis, a senior attorney for the Foundation about its decision to file suit against the Department of Housing and Urban Development for changes made to the HECM program.
VIGELAND: Tell us what has now happened with some of these reverse mortgages.
CONSTANTINE-DAVIS: Well, over the past year or a little more, we’ve been hearing about a lot of folks who are surviving spouses of a person who took the reverse mortgage. I think the most typical scenario is where two people have been married and living in a home for many years and at some point they decide they need to access the equity in their home. And a mortgage broker of some type will convince them that it’s better to put the reverse mortgage in one of their names or they don’t even know that it’s only getting put in one of their names, but in fact, that’s what happens.
VIGELAND: Instead of both of them signing it.
CONSTANTINE-DAVIS: Yes. And the problem with that is that it’s not just that the mortgage is only in one of their names, it’s that in order for that to happen, the other person’s name is taken off the deed to the property. So essentially, one spouse is being divested of all of his or her interest in the property and usually the older spouse is left on the deed and on the reverse mortgage. And the reason that the broker’s like that is because you can take a higher amount if you’re older. The amount that you can take out in a reverse mortgage is a function of the value of your property and your age.
VIGELAND: Alright, so what has happened now is that there was a change in the rules at the Department of Housing and Urban Development. Tell us what that did.
CONSTANTINE-DAVIS: The rule has always been with reverse mortgages, neither you nor your heirs will ever owe more than the value of your property. So, in 2008, HUD said that’s only true if you sell the property. If you want to keep the property, if your heirs want to keep the property, they have to pay off the full mortgage balance. HUD also said that if you want to buy the property from the estate, you have to pay the full mortgage balance rather than the appraised value of the property. This rule came, as you imagine, at a uniquely bad period of time, when values in housing market had already plummeted and they have dropped even further since that time.
To read a copy of the rest of the interview, check out the link below.