Florida Leads the US in HECM Defaults

NewImageThe Orlando Sentinel is reporting that Florida has the most HECM loans in default from failure to pay for taxes and insurance.

CredAbility, a non profit consumer credit counseling agency based in Atlanta told the publication the state has nearly 5,300 or about 18 percent of all defaults.

Sue Hunt, director of reverse-mortgage counseling for the agency told the paper, “we are just starting to look at the problem and assess the extent of it. What we have is an accumulation of several years of possible defaults that have never been addressed. The hope is that, by working with people, we will be able to solve most of the problems, and that will leave only a small bucket of them still in trouble.”

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The Department of Housing and Urban Development recently published guidance on how to handle the loans and is providing nearly $3 million to housing counseling agencies to specifically help reverse mortgage borrowers facing this issue.

But what’s driving the defaults?  According to the article, it’s soaring property-insurance rates, rising property taxes, shrinking incomes, health problems and other factors could also be responsible for pressuring their finances.

“With the ever-increasing costs of maintaining a residence, you have seniors living on fixed incomes who are really vulnerable to problems in the economy,” said Richard Schram, interim director of CredAbility’s Central Florida operation. “The people who have defaulted in this case could have ended up in the same position even if they didn’t have a reverse mortgage.”

Growing reverse-mortgage defaults put homeowners at risk of foreclosure

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  • By declaring that 5,300 is about 18 percent of all defaults, no later than last Wednesday Ms. Hunt was personally declaring that the number of technical defaults nationally is around 30,000. The writer does not state if he obtained his information for the article directly in part from a HUD report or totally relied on Ms. Hunt and she referenced such a report.

    13% of all outstanding HECMs have their collateral in Florida. So to see that 18% of all defaults are in Florida is pleasantly surprising. With the high number of foreclosures and irreversible defaults in Florida, 18% seems relatively low based again on the fact that the collateral on 13% of all outstanding HECMs is located there. Seeing that 8% of all HECMs in Florida are in technical default but that percentage is 6% nationally is quite encouraging.

    The HECM technical defaults are NOT necessarily irreversible defaults. One would have thought that the percentage of technical defaults on Florida related HECMs would have been closer to 12% rather than 8% based on the overall situation with foreclosures and irreversible defaults in Florida.

    The national number cited (30,000 technical defaults) is fifty percent greater than the number that the HUD OIG estimated not long ago. Either this reflects poorly on the extrapolation methods used by the OIG or it means that technical defaults are not just growing but in fact, accelerating.

    Please note that the author claims based on the information he has received that the number has more than doubled in the last two years. If that is the case, then the defaults were less than 15,000 two years ago but more than twice that now if national statistics are being referenced but that is the problem with this article, it does not specify what is being referenced. Whether individuals like Ms. Hunt realize it or not, releasing this kind of information without adequate support from HUD and without identifying what it is that is being presented and putting it into perspective has a potential to facilitate fear mongering and do far more damage than good. Even though we have free speech in this country, no one is permitted to callously shout out “fire” in a crowed auditorium with impunity. The last time we heard about an undisclosed report, some unnamed counseling agency executive was citing to a US News reporter that an undisclosed industry report placed at least 20% of all outstanding HECMs as not being in compliance —- whatever that means.

    Unfortunately the writer gives the numbers in Florida without any perspective. What if only 2% of the total outstanding HECMs had their collateral in Florida? What if it was 30%? In one case there would be room for alarm but, in the other case, why stir up the pot in Orlando?

    Since coming into the industry I do not remember any time where there have been so many comments by counselors in the press. If their comments provided prospective and reason, that would be one thing but to stir up a hornet’s nest with saying 20% of all HECMs are not in compliance and all but saying that the rate of technical defaults is doubling every two years, seems a little over the top and, forgive me, plainly irresponsible. Let me be the first to openly condemn the current trend and ask these industry participants to tone down the rhetoric.

  • >>According to the article, it’s soaring property-insurance rates, rising property taxes,

    Last week I spoke with a Floridian homeowner and was amazed at how much their property taxes have increased the past few years. It’s been slowly squeezing them, making it difficult to pay for medications. I explained the BenefitsCheckUp portion of counseling, and asked her to ensure the Counselor reviewed all potential assistance programs that may be available in those two areas. I’m really liking the new BenefitsCheckUp program.

    • Raymond,

      The BCU is great for the type of customer you deal with. FIT, however, should be eliminated and a real budget program put in its place with some probing questions. Or as the old saying goes down with FIT up with BCU.

  • Critic,

    I have to agree with you on this one. From what I have read in the mortgagee letter on this topic, servicers are just starting to report details on loans that have defaulted on their taxes or insurance at a loan level to HUD effective February 7th (yesterday).

    For any organization (OIG, counseling agencies, etc., etc.) to extrapolate default statistics from partial information is reckless and irresponsible.

    We all know that there is an issue out there, but NRMLA, counseling agencies and the servicers seem to be working on getting their arms around it. I would be nice if we could hold off on the “house is on fire” rhetoric and let’s see what the DATA shows.

    Let’s just hope that HUD is willing to share that default data with the industry, as clarity and understanding of this issue is key.

      • Regguy1,

        Counseling agency execs certainly are singlehandedly making it look that way. They seem to have little concern about curing the problem, only exposing it at its worst. Hardly what one would expect out of counseling!!!

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