HUD Drops Harsh Rule on Reverse Mortgages
The rule reversal came about in response to litigation by the
Reverse mortgages are loans available to seniors aged 62 or older who have equity in their homes. The loan typically makes cash or a line of credit available to the homeowner based on the equity in the property and homeowner's age. Seniors have been warming to reverse mortgages because their obligation to repay the loan is deferred until they die, sell the home, or move out. Prior to the 2008 rule change, the general practice stipulated that surviving spouses, who may have been removed from the title in order for the elder partner to qualify for the reverse mortgage, could purchase the home for 95 percent of the property's true market value.
But at the close of 2008 -- which
As Constantine-Davis notes, "It put most of the (reverse) mortgages underwater immediately."
In March, the
Last week, HUD, perhaps realizing that the increased attention garnered by reports of widespread foreclosures on seniors was bad public relations, proactively rescinded the 2008 letter, heading off foreclosure proceedings against the plaintiffs, and by extension, thousands of others.
Constantine-Davis asserts that the
The reversal of the 2008 rule only addresses part of the original lawsuit, but the
However, in light of last week's capitulation, Constantine-Davis believes momentum is on the people's side. "I don't know what steps HUD is going to take from here," she says. "They have filed a motion to dismiss the case. HUD may issue a new rule altogether. We would then have to look at that rule to see if it offers enough protection for people. This could be good news for heirs."
HUD has indicated that prior rule changes were intended to make certain that all sales of properties were legitimate, market-driven sales and based on the each property's real value, and new guidance would be issued in the future on this issue.
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