New reverse mortgage loan rules lift burden from the borrower's spouse
On August 4 new reverse mortgage rules will go into effect allowing the borrower's spouse to defer payments in case the borrower passes away, or must move out of the home for any reason. If the spouse continues to pay taxes, insurance and association fees then he or she will be allowed to continue living in the home without the threat of foreclosure.
Under current rules if the borrower dies, according to the Austin American-Statesman, the spouse must pay the debt or be forced to sell their home. The need for change was realized in 2013 when a Maryland homeowner was facing eviction because his wife - whose name was on the reverse mortgage - had died because he couldn't pay back the loan.
According to CNN, via the Federal Housing Administration, almost 10 percent of reverse mortgage borrowers had lost or were in danger of losing their homes after defaulting on their loans, as of last September.
"We heard from a lot of surviving spouses getting evicted from their houses; lots of folks didn't even know they were taken off the deed and found out when their spouse died," said Jean Constantine-Davis, an attorney with AARP, according to CNN.
With a reverse mortgage, seniors 62 or over can convert home equity into cash. The borrower receives a line of credit, monthly payment or lump sum. When the borrower moves, dies or sells the home, the loan is due back with interest.
In 2011 the FHA counted 740,000 reverse mortgages nationwide, though that number is expected to rise as baby boomers become eligible for reverse mortgages - a rough definition for baby boomers is those born between 1946 and 1964. The generation includes an estimated 32 million homeowners.