A government-backed reverse-mortgage program intended to help seniors tap their home equity ran into problems as interest rates rose, pushing one of the largest participating lenders into bankruptcy last fall, recent court documents show, WSJ Pro Bankruptcy reported. Reverse Mortgage Investment Trust Inc. filed for chapter 11 in November as it faced a liquidity crunch, and the 116,000 loans on its books are now being managed by the U.S. government. RMIT’s bankruptcy filings reveal how the government-backed loan program worked against the company’s survival. The program’s rules required RMIT to take out a rising number of market-rate loans to buy out existing loans that carried lower rates, something that became unsustainable as interest rates kept rising and funding dried up, the lender said. The Department of Housing and Urban Development is “exploring ways to offer support to address current liquidity challenges” facing lenders by making changes to the program, a HUD representative said. What happened to RMIT illustrates the challenges facing reverse-mortgage lenders, said Jim Parrott, a nonresident fellow at the Urban Institute, a Washington think tank. A recent report co-written by Mr. Parrott said policy makers “need to work quickly, because if this burden is not addressed soon, the liquidity challenges that brought down [RMIT] will drive off the rest of the industry.”
