AARP has a new blog post warning would-be reverse mortgage borrowers to proceed with caution following a New York Times article published Monday about how the Home Equity Conversion Mortgage (HECM) program is “fraught with problems.”
Both the NY Times article and AARP focus on the subject of foreclosure among elderly borrowers, which can happen if a spouse is left off the title of the home, and an AARP attorney blames the Department of Housing and Urban Development (HUD) for the foreclosures described in the article.
Reverse mortgages are growing in popularity as older adults tap their home equity to help them maintain their standard of living in retirement. But these loans come with potentially serious risks and AARP has been working for years to educate older homeowners on reverse mortgages, so they don’t get into trouble.
The New York Times reported Monday about some of the more extreme problems that people can face after taking on a reverse mortgage, including foreclosure. The cases involved seniors whose older spouses were listed as the sole borrowers on the loan. When those older borrowers died, the surviving spouses were left at risk of losing their homes. They often faced the choice of paying back the loan or facing foreclosure, the newspaper reported.
AARP welcomed the Times story. Moreover, Jean Constantine-Davis, a senior attorney with AARP Foundation, says the U.S. Department of Housing and Urban Development is responsible for the foreclosures that the newspaper described. She says HUD has failed to recognize that surviving spouses not listed on reverse mortgages, or on property deeds as homeowners, are protected by law from being displaced from their homes.
“This problem will only worsen as the program grows, unless HUD recognizes its first obligation is to protect homeowners and changes its rules,” Constantine-Davis said.
The non-profit organization, whose purpose is to promote the interest of the 50-and-older crowd, has filed a lawsuit accusing HUD of “ignoring the law” in such cases.
And in the meantime, says AARP, homeowners considering a reverse mortgage would do well to understand how the loan works and “proceed with caution.”
Written by Alyssa Gerace