Seniors should be wary of reverse mortgages. They are marketed as a way for people to create a revenue stream for themselves by accessing equity in their homes. Lenders are supposed to be repaid upon the death of the borrower or sale of the home.
In practice, however, reverse mortgages can be a nightmare for elderly homeowners. This can happen, for example, when a married couple owns a home together and one of them dies. In the past, federal rules effectively required surviving spouses or heirs to pay off the full amount of the reverse mortgage – even if the value of the home had plummeted.
Because of the drastic decline in real estate values, this rule had the effect of facilitating many foreclosures. The Department of Housing and Urban Development finally rescinded the rule, under pressure from litigation brought by the AARP. But reverse mortgages remain a problematic financing form for many people.
The latest chapter in this evolving story is that some big lenders are getting out of the reverse-mortgage business entirely. Last month, Well Fargo, the largest home lender in the country, announced that it would no longer originate new reverse mortgages. The company cites the possibility of further declines in property values as the reason for its decision.
A mortgage industry consultant, Terry Wakefield, put it this way: “Why be in the reverse mortgage business if the equity that you’re lending, your collateral, is disintegrating?”
If you have questions about reverse mortgages, contact an experienced real estate lawyer at our firm.
Source: “Wells Fargo says it will get out of the reverse-mortgage business,” Star Tribune, 6-17-11