Friday Round-Up: FHA’s Enforcement Stops Lending, HECM Name Game

This week, RMD brought you the story of potential reverse mortgage borrowers suddenly thwarted by a Federal Housing Administration rule that has been on the books for decades, the latest research on just how tainted the “reverse mortgage” name can be in the minds of consumers, and several interesting takes on the Home Equity Conversion Mortgage program from the popular media.

In case you missed this particularly busy week in reverse mortgage news, here’s the top five articles of the past seven days, as decided by RMD’s loyal readers and their clicks:

Obscure Regulation Halts Reverse Mortgages, FHA Lending in Some Towns — RMD became the first national publication to cover the growing reverse mortgage intrigue in certain Phoenix-area retirement communities. For years, borrowers in the public-private Sun City and Sun City West developments had been able to take out HECMs and other FHA-backed loans, but starting late last year, the agency began rejecting applicants under the “free assumability clause” — which says that the FHA can’t be on the hook for any additional fees if it ever has to foreclose on the property. That’s a problem in these communities, since buyers or lenders are required to pay a one-time, $3,500 fee that helps fund shared recreation facilities every time a property changes hands. Real estate agents say the parks-and-rec corporations need to change their rules. The parks-and-rec corporations say the ball’s in FHA’s court. Until the impasse is resolved, borrowers — including those who desperately need to tap into their home equity — remain caught in HECM purgatory.

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Consumers Like Reverse Mortgages Better When They’re Called Something Else — One focus group was told only about nameless financial products, one that could allow them to tap into home equity without making regular payments, and another that achieved the same goal but required a traditional mortgage check each month. The other group was told about reverse mortgage lines of credit and traditional home equity lines of credit. Not surprisingly, the group that heard about the anonymous products preferred the reverse mortgage, but the folks who were told the names up front were far more skeptical of the HECM line of credit. It’s important research that shows the “reverse mortgage” tag remains deeply damaged by previous misdeeds — but that consumers truly find the HECM line of credit option attractive.

Five Essential Reverse Mortgage Comparison Resources — Back on the list for a second week, this list of HECM vs. HELOC comparisons is a must-read — and a must-share — for industry professionals and curious borrowers alike.

Skeptical Columnist Recommends HECM Line of Credit Over HELOC — Continuing the theme, nationally syndicated housing advice columnist Benny L. Kass extolled the virtues of the HECM line of credit in a piece that appeared in, among other publications, the print edition of RMD’s hometown Chicago Tribune last Sunday. While purportedly a balanced look at the products, Kass clearly comes down on the side of the HECM line of credit, noting the lack of defined “draw period” and the growth of available credit over time.

Get Government Out of Reverse Mortgages, Commentator Says — Over at The Daily Signal, a conservative news and opinion website, Heritage Foundation researcher John Ligon had a fiery and novel idea for the HECM program: remove the Department of Housing and Urban Development from the equation entirely. Citing defaults and the negative benefit of the HECM Mutual Mortgage Insurance (MMI) fund in 2016, Ligon claims that federally-backed reverse mortgages are a drag on taxpayers, and the government’s involvement inhibits the free market’s ability to offer a wider variety of equity-tapping options for consumers.

Reverse mortgages around the web

One-Man Reverse Mortgage Fraud in Puerto Rico — This curious release comes from HUD’s office of the inspector general and the Department of Justice, which touted the indictment of a Puerto Rico man — Tommy Rudy Habibe-Arias — on a single count of making false statements on a HECM loan application. According to HUD, Habibe-Arias applied for a HECM all the way back in September 2009, but has never actually used the property as his primary residence despite claiming it as such in paperwork filed with Master Mortgage Corporation. Habibe-Arias received more than $200,000 from the reverse mortgage, the release said.

It’s unclear why the Justice Department and HUD are publicizing a single case of mortgage fraud, but the charges could have serious consequences for Habibe-Arias: According to the release, he faces up to 30 years in jail and a $1 million fine.

California Woman Gets Year in Jail for HECM Fraud — A woman from Nipomo, Calif. was sentenced to a year in prison this week after she encouraged a 74-year-old man to take out a reverse mortgage and invest the proceeds in her business, local ABC affiliate KEYT reported. Araceli Cortes took $114,000 from the man, the station reported, in a scam that’s all too familiar for longtime players in the reverse mortgage industry.

A Reverse Mortgage is Not Free Money — The Cincinnati Enquirer ran this cautionary piece from a local investment advisory team, in which the authors tag reverse mortgages with the “last resort” warning. “But since regular loan payments aren’t required, every month, borrowers (or their heirs) will owe more,” the team from Simply Money Advisors in Cincinnati writes. “This is an example of compound interest working against you. The longer the loan is held, the more will be owed,” they continue, though they do not get into the details of mortgage insurance or the non-recourse aspect of the products.

“It’s not free money or even your money, as the commercials suggest. It’s a loan and should be used as a financial option of last resort.”

Programming note

Like many of you reading this, I’ll be at the National Reverse Mortgage Lenders Association’s eastern conference and expo in New York City next week, covering the panels and roving the hotel to report on the most interesting developments in the industry. Please feel free to flag me down, say hello, and let me know what you think of RMD’s coverage.

Written by Alex Spanko

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  • This warning is excellent: “’This is an example of compound interest working against you. The longer the loan is held, the more will be owed….’” As to a HECM they could have added in ongoing MIP as compounding as well. Einstein called compound interest, the eighth wonder of the world. Warren Buffett quotes Einstein regularly and identifies that formula as the key to his success.

    Yet the author of the post above argues: “…they continue, though they do not get into the details of mortgage insurance or the non-recourse aspect of the products.” Why is that needed; it is not an ad for a HECM. In fact the argument is accurate since there is no cap on what percentage of the value of the home is at risk and there is no way to know if the value of the home at termination will be great than, equal to, or smaller than the balance due on the mortgage. Nonrecourse only applies at termination and not any earlier as some want to foist.

    “’It’s not free money or even your money, as the commercials suggest. It’s a loan and should be used as a financial option of last resort.’” Except for the last warning, this quotation is accurate. Some argue that the line of credit “belongs to the borrower” which is nonsense. The line of credit is just the additional amount that the lender is willing to lend to the borrower without loan modification.

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