Reverse-Mortgage Program Takes a Hit

October 2, 2013
Wall Street Journal  
mortgage lending news

A federal judge on Sept. 30 handed down a decision that could potentially increase losses under FHA's reverse mortgage program. U.S. District Judge Ellen Huvelle disagreed with the Obama administration's interpretation of a law for the program that left some homeowners facing foreclosure after a spouse died. AARP filed suit two years ago, arguing that the program violates federal law by requiring surviving spouses who are not on the reverse mortgage to pay off the loan in full or face foreclosure.

While there is no estimate of how many homeowners have mortgages where only one member of a couple has his or her name on a loan, the FHA could face larger losses because younger, surviving spouses who are not listed on the loans will still be able to live in the homes and receive any monthly payments due. Meanwhile, warned Ira Rheingold of the National Association of Consumer Advocates, the decision may be the catalyst for rule changes that require actuarial calculations based on the age of the youngest spouse -- which, in turn, could affect lending volumes. "Fewer people are going to do reverse mortgages," he said.

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