Communication Breakdowns are Reverse Mortgages’ Biggest Problem

Despite the series of program changes and improved consumer protections that have been implemented over the years, reverse mortgages are still grappling with one of their biggest issues: communication breakdowns among borrowers and their family members.

The non-borrowing spouses of reverse mortgage borrowers have long been the center of controversy and the source of virtually all mainstream media horror-stories bashing the Home Equity Conversion Mortgage (HECM) product when the loan becomes due and the widowed spouses is forced to either repay the loan balance or vacate the home.

But while policy changes in the past year aimed at resolving this issue appeared to have finally lifted the pall cast over the reverse mortgage product once and for all, problems remain for adult children who live with their aging, reverse mortgage borrowing parents—the cause of which in many circumstances is often due to a lack of communication amongst families, suggests an article this week from The Washington Post.

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A lack of communication between reverse mortgage borrowers and their children who would inherit the family home continues to be one of the biggest issues with reverse mortgages, says The Washington Post article, which features perspectives from several reverse mortgage industry members.

In some situations, parents tell their adult children about their reverse mortgage only after they have already signed the paperwork, whereas others don’t share the information at all, said Beth Paterson, a certified reverse mortgage professional with Reverse Mortgages SIDAC in St. Paul, Minn.

Adult children who manage their parent’s finances might find out about their reverse mortgage in other ways, the article notes, such as finding an annual occupancy letter from the loan servicer or a mortgage clause on a homeowner’s insurance policy or premium notice.

Last year, the Department of Housing and Urban Development (HUD) ruled that lenders are allowed to defer foreclosure for certain eligible non-borrowing spouses for HECM case numbers assigned on or after August 4, 2014. HUD then expanded those similar protections earlier this year via Mortgagee Letter 2015-15 for eligible non-borrowing spouses with HECM case numbers before Aug. 4, 2014.

Those same protections, however, are not afforded to adult children, begging the need for greater discussion and conversation among seniors and their families about the implications of getting a reverse mortgage.

“Experts say the key to avoiding such problems is for borrowers to understand the full ramifications of a reverse mortgage on their children and spouses,” the article states. “If they want their heirs to inherit the home, they need to put mechanisms in place beforehand.”

Read The Washington Post article.

Written by Jason Oliva

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  • Good points and items for discussion that Jason brings out in his article.

    However, you can look at this in many ways. First off, I feel it should be the responsibility of an originator during the interviewing stage and before the application is taken to step up to the plate.

    I have always felt either if I took a loan application or if I conducted training sessions for loan officers that they should always, without fail, ask the senior borrowers if they would like us to talk to other family members or even their accountant or advisor about the HECM program they are about to get into!

    Now, if the borrowers say no, then at least we fulfilled our obligations to them and their family members. At this point, it is 100% the responsibility of the senior borrowers to communicate the details, if they so choose to do so. Only the borrowers know their personal relationships with family members.

    Lets do the best we can to help this situation. I feel the communication process must begin with us. We can lead one to the water hole but we can’t force the one we bring there to drink the water! But for God sakes, let us make sure we always guide them in the right direction heading to the water hole!

    John A. Smaldone

    This is the expressed opinion of John A. Smaldone only and does not represent an opinion of Willow Bend Mortgage or any of their affiliates.

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