Lawsuit Forces HUD to Rescind Reverse Mortgage Policy Changes

By Kyle Chezum Updated on 4/8/2011

The Department of Housing and Urban Development implemented a policy change regarding reverse mortgages back in 2008.  The policy change obligated spouses of mortgage holders to pay back reverse mortgage debt in full at the time of the mortgage holder's death if the spouse was not also listed as a mortgage holder.  In addition to this, the policy obligated these widowed spouses to pay back the full amount of the reverse mortgage value, over and above the value of the home.  This has never been a tenet of reverse mortgages.

Many widows and widowers whose names weren't on their spouses' mortgages found themselves unable to refinance for the full reverse loan debts owed, and many were forced into foreclosure proceedings.  Until recently, little had been done to resolve the apparent issue.

A lawsuit brought by several plaintiffs and the AARP Foundation has forced the HUD to rescind the policy changes it implemented in 2008, the New York Times reported.  But this doesn't guarantee safety for elderly homeowners yet.  The AARP wants to push forward with the lawsuit and establish a precedent that a widow or widower cannot ever be foreclosed on in the wake of a spouse's reverse mortgage.  This risk, the foundation asserts, defeats the inherent safety of a reverse mortgage and will make the loan type too risky for older borrowers to utilize.

At present, reverse mortgage practices actually encourage just one spouse to apply, as the monthly payout is usually higher this way.  The AARP hopes to change this as well.