Reuters: Industry and Government Move to Address HECM Defaults

NewImage.jpgMark Miller writes about how the industry and government are addressing reverse mortgage defaults in his latest Reuters column.

Barbara Stucki, vice president of home equity initiatives at the National Council on Aging, told Reuters that about five percent of the 550,000 loans outstanding are non-performing for failure to pay taxes and insurance.

Miller writes that the situation has been a political “hot potato” for the federal agencies involved, which include the Department of Housing and Urban Development, the Federal Housing Administration and Fannie Mae, which previously purchased the majority of HECM loans.

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Peter Bell, President of the National Reverse Mortgage Lenders Association told Reuters that none of the agencies wanted to take the lead and clarify how to handle the defaults, so a backlog grew.

“For years, Fannie was the loan owner and HUD was the insurer,” he said. “The loan servicer would advance the taxes for the borrower, but at some point they’d go to HUD and ask for permission to call the loan. No one wanted to make that call, because it could lead to a foreclosure process. Ultimately, if the borrower doesn’t pay they’d have to move to [foreclosure.]”

Lenders, feds move to address reverse mortgage defaults

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  • This is an excellent summary of the trouble with the arguments used by many senior advocates: “‘It used to be that HECMs were used by people who didn’t have enough money to get by each month, and used small amounts from the loan to supplement Social Security. Now, the biggest growth is in the under-seventy population. They are entering retirement with mortgages, and using the HECM to defer their debt obligation and get rid of monthly payments. That leaves some of them without much of a cushion to deal with something unexpected that might come along, like a health care emergency. That’s where we’re seeing people get into trouble.’”

    In essence this argument states that seniors who get a HECM to pay off another mortgage are in danger of not having money when they need it. I must be one of the most ethically deficit financial advisers in America because this is one of most illogical and financially irresponsible paragraphs I have read. My question is if these folks had not gotten a HECM, how would they be better off? It seems the senior advocates look at the growing debt side of shrinking equity but not reductions in values over the last four years. What does it say about their understanding of cash management? But let’s look at a very relevant example.

    A senior couple in Riverside County California got a HECM back in 2006, taking out their existing mortgage. They now are not making monthly mortgage payments. The balance due is now greater than the value of their home. As to their prior mortgage, if they had continued making their monthly mortgage payments, they would be in the same basic condition, underwater but without the cash from having no monthly mortgage payments.

    Here is what the senior advocates just do not get. It is not their debt position that is of issue in this era, it is their cash position. This couple saved the money from not having mortgage payments and as a result have a larger retirement nest egg. If they had not done this, that portion of their nest egg would not exist yet they could not refinance at this point in time to get that same amount of cash. The same is true of an accountant and her engineer husband living in the east portion of Los Angeles County, CA but they spent some of it on a European vacation.

    Now what would have happened if the Riverside couple had used the amounts they saved in mortgage payments to go on trips and buy “frivolous toys” like a motor home? Would their situation be any different than if they had not gotten the HECM at all? NOT in this home value appreciation/depreciation climate especially in Riverside County and many other counties!!!

    Yes, the senior advocate did say “some.” The trouble is most of the HECMs outstanding were issued in the last four years. So I have trouble understanding how this senior advocate has much of a point unless the seniors she is dealing with have homes with rising values and the seniors wasted every dime of the mortgage monthly payments they are no longer making. Financial advice must be flexible based on shifts in the economic environment. What was true in 2006 is not true today. I worry about the financial advice seniors receive in counseling now days.

  • This is an excellent summary of the trouble with the arguments used by many senior advocates: “‘It used to be that HECMs were used by people who didn’t have enough money to get by each month, and used small amounts from the loan to supplement Social Security. Now, the biggest growth is in the under-seventy population. They are entering retirement with mortgages, and using the HECM to defer their debt obligation and get rid of monthly payments. That leaves some of them without much of a cushion to deal with something unexpected that might come along, like a health care emergency. That’s where we’re seeing people get into trouble.’”

    In essence this argument states that seniors who get a HECM to pay off another mortgage are in danger of not having money when they need it. I must be one of the most ethically deficit financial advisers in America because this is one of most illogical and financially irresponsible paragraphs I have read. My question is if these folks had not gotten a HECM, how would they be better off? It seems the senior advocates look at the growing debt side of shrinking equity but not reductions in values over the last four years. What does it say about their understanding of cash management? But let’s look at a very relevant example.

    A senior couple in Riverside County California got a HECM back in 2006, taking out their existing mortgage. They now are not making monthly mortgage payments. The balance due is now greater than the value of their home. As to their prior mortgage, if they had continued making their monthly mortgage payments, they would be in the same basic condition, underwater but without the cash from having no monthly mortgage payments.

    Here is what the senior advocates just do not get. It is not their debt position that is of issue in this era, it is their cash position. This couple saved the money from not having mortgage payments and as a result have a larger retirement nest egg. If they had not done this, that portion of their nest egg would not exist yet they could not refinance at this point in time to get that same amount of cash. The same is true of an accountant and her engineer husband living in the east portion of Los Angeles County, CA but they spent some of it on a European vacation.

    Now what would have happened if the Riverside couple had used the amounts they saved in mortgage payments to go on trips and buy “frivolous toys” like a motor home? Would their situation be any different than if they had not gotten the HECM at all? NOT in this home value appreciation/depreciation climate especially in Riverside County and many other counties!!!

    Yes, the senior advocate did say “some.” The trouble is most of the HECMs outstanding were issued in the last four years. So I have trouble understanding how this senior advocate has much of a point unless the seniors she is dealing with have homes with rising values and the seniors wasted every dime of the mortgage monthly payments they are no longer making. Financial advice must be flexible based on shifts in the economic environment. What was true in 2006 is not true today. I worry about the financial advice seniors receive in counseling now days.

  • Every article I read insinuates that a HECM seems to be responsible for the borrower NOT paying T&I. Could someone explain the difference in what happens when a borrower doesn’t pay T&I when they have a HECM, and when they don’t have a HECM. WHAT HAPPENS?

  • Every article I read insinuates that a HECM seems to be responsible for the borrower NOT paying T&I. Could someone explain the difference in what happens when a borrower doesn’t pay T&I when they have a HECM, and when they don’t have a HECM. WHAT HAPPENS?

  • Any idea of how many of the defaults were by estates if the borrowers were deceased, vs. original borrowers who can’t pay their taxes and insurance?

  • Any idea of how many of the defaults were by estates if the borrowers were deceased, vs. original borrowers who can’t pay their taxes and insurance?

  • The world of public HECM speculators is growing. First we heard technical defaults are less than one percent.

    Then the HUD OIG did a little investigating and extrapolated that the total for a few servicers was around 13,000. From there he extrapolated that the total was around 20,000.

    Last week we allegedly had a HUD official declaring that the number of HECM technical defaults and their magnitude was unknown. In that same article, the author quotes an unnamed executive at a counseling agency citing an undisclosed industry document placing all non-compliance at 20%. Now we come to a speculator saying that up to 27,500 HECMs are in technical default. From where does she get this information?

    The only person who has credibility in this game of one-upmanship is the HUD OIG; he actually dug in and did some trench work. Yet his info is quickly aging. Why all of these others enter into this guessing game with no real handle on the situation seems to be a way to justifying their stake in the industry.

    In part it is the fault of the industry that the situation has grown so out of hand. There is a way all of this data could be at the command of NRMLA without NRMLA being involved in the gathering or reporting process. It is by simply using a recognized third party with a history of maintaining confidentiality to gather and report. Lender proprietary data privacy could easily be maintained and yet still provide aggregate reporting. The broadcast industry is famous for putting together such reports.

  • The world of public HECM speculators is growing. First we heard technical defaults are less than one percent.

    Then the HUD OIG did a little investigating and extrapolated that the total for a few servicers was around 13,000. From there he extrapolated that the total was around 20,000.

    Last week we allegedly had a HUD official declaring that the number of HECM technical defaults and their magnitude was unknown. In that same article, the author quotes an unnamed executive at a counseling agency citing an undisclosed industry document placing all non-compliance at 20%. Now we come to a speculator saying that up to 27,500 HECMs are in technical default. From where does she get this information?

    The only person who has credibility in this game of one-upmanship is the HUD OIG; he actually dug in and did some trench work. Yet his info is quickly aging. Why all of these others enter into this guessing game with no real handle on the situation seems to be a way to justifying their stake in the industry.

    In part it is the fault of the industry that the situation has grown so out of hand. There is a way all of this data could be at the command of NRMLA without NRMLA being involved in the gathering or reporting process. It is by simply using a recognized third party with a history of maintaining confidentiality to gather and report. Lender proprietary data privacy could easily be maintained and yet still provide aggregate reporting. The broadcast industry is famous for putting together such reports.

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