Since the Bush Plan to Save Housing won't assist any borrowers who can't make their existing mortgage payments, the reverse mortgage has arisen as a potential savior for older buyers looking to pay off a toxic loan while receiving steady monthly payments from their built-up equity. Writing in the Wall Street Journal:
Reverse mortgages used to be a way for homeowners to get extra cash during retirement. Now they're also being used for a more-pressing purpose: helping people who are struggling to meet payments on high-interest-rate loans to keep their homes.
The strategy, which is relatively novel but gaining popularity among legal-aid attorneys and housing advocates around the country, calls for persuading lenders to take the cash generated by a reverse mortgage in lieu of foreclosing on older homeowners...
Other public-service attorneys around the country are turning to reverse mortgages as a way to negotiate lower payoffs for subprime loans made to older clients. In Chicago, for example, "we advise a lot of clients that a reverse mortgage is appropriate when it's the only way to keep them in their home," says Michelle A. Weinberg, a supervisory attorney at the Legal Assistance Foundation of Metropolitan Chicago. "The same people have been refinanced over and over again to very little benefit for themselves, with high fees."
It won't bail out everyone, but it could help older borrowers who claim they were misled by lenders who didn't divulge the details of loan resets down the road.
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