How Can Reverse Mortgages Discriminate by Age?
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I thought federal law said that a mortgage lender cannot care or even notice how old you are when you apply for a mortgage. So how can reverse mortgages be allowed only for homeowners 62 and older?
The short answer is that the federal government made an exception to the general rule for reverse mortgages.
Reverse mortgages raise difficult issues under federal laws. In order to design an instrument that is fair to and suits the needs of the applicant but does not expose lenders to undue risk, it is necessary to consider the applicant’s age. In these instruments, age is used to consider the applicant’s life expectancy - not creditworthiness. Although ordinarily prohibited from considering the applicants age in this way, federal law and regualtions permit this for reverse mortgages only. This is permissible even though reverse mortgages would not be available to younger borrowers.
Regulation B - Equal Credit Opportunity - 12 CFR Part 202
Consideration of age in a reverse mortgage. A reverse mortgage is a home-secured loan in which the borrower receives payments from the creditor, and does not become obligated to repay these amounts (other than in the case of default) until the borrower dies, moves permanently from the home, or transfers title to the home, or upon a specified maturity date. Disbursements to the borrower under a reverse mortgage typically are determined by considering the value of the borrower’s home, the current interest rate, and the borrower’s life expectancy. A reverse mortgage program that requires borrowers to be age 62 or older is permissible under Sec. 202.6(b)(2)(iv).
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