Children of elderly borrowers are now learning how their parents’ reverse mortgages are threatening their own inheritances.

Questions:
1. Under federal rules for reverse mortgages, what options are survivors suppose to be offered when their parents die?
2. All reverse mortgages require the borrower to pay into a federal insurance fund each month. What is this insurance suppose to do?
3. What is the estimated amount of reverse mortgages that are underwater?
4. Use the example of Robert Campbell, assuming that his mother originally received $150,000 in 2008.
(a) What entries would the lender have made over the period from 2008 to 2012?
(b) What entry would the lender have made, if they had let Mr. Campbell know about the
95% rule?
(c) Explain what type of entries they will make if they foreclose on the house of
Mr. Campbell’s mother in 2014.

Source:
Silver-Greenberg, J. (2014). Pitfalls of Reverse Mortgages May Pass to Borrower’s Heirs. The New York Times, March 26 (Retrievable online at http://dealbook.nytimes.com/2014/03/26/pitfalls-of-reverse-mortgages-may-pass-to-borrowers-heirs/?_php=true&_type=blogs&_php=true&_type=blogs&hp&_r=1)