Well-intentioned consumer groups have done an admirable job of curbing the abuses of mortgage lenders, but recent legislation passed in Washington state will inadvertently curtail the number of lenders able to offer reverse mortgages. Lenders in other states are watching with interest.
In a nutshell, Washington state consumers pushed their representatives to increase lender licensing requirements and scrutinize all negative-amortization loans. Negative amortization occurs when the monthly loan payment is less than the principal and interest needed to pay off the loan in a specific period of time. The difference is added to the loan amount, so that the borrower owes more than the amount initially borrowed.