Reverse Mortgage Foreclosures Spiked Sharply in 2016

The number of reverse mortgage foreclosures surged significantly in 2016, according to a new analysis from a pair of nonprofits.

Between April and December 2016, the Department of Housing and Urban Development logged 32,976 reverse mortgage foreclosures — for comparison, the number recorded in the seven years between April 2009 and April 2016 was 41,237.

That data came from a Freedom of Information Act (FOIA) request filed by the California Reinvestment Coalition, a group that advocates on behalf of low-income borrowers, and the Florida-based Jacksonville Area Legal Aid.

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“This new data adds to our concerns that HUD is asleep at the wheel when it comes to protecting vulnerable seniors from foreclosures that shouldn’t happen,” California Reinvestment Coalition deputy director Kevin Stein said in a statement announcing the results of the FOIA request.

“Seniors are losing their homes at an alarming rate, and HUD appears to be doing little more than rubber-stamping foreclosure requests by servicers who should be making every reasonable effort to preserve senior homeownership whenever possible,” Stein said.

Analyzing Home Equity Conversion Mortgage foreclosure trends tends to be more difficult than their forward counterparts, as the term “foreclosure” has a more nuanced meaning in the reverse mortgage space: In addition to cases in which homeowners failed to pay their taxes and insurance and actually defaulted on the loan, HECM foreclosures also can include scenarios in which the last surviving borrower died or moved away.

The death of the last surviving borrower is also the most common cause of reverse mortgages and foreclosures, according to a statement that a HUD spokesperson gave Huffington Post contributor Jack Guttentag last year.

Brian Sullivan, a HUD spokesman, told Politico that the observed foreclosure surge “probably” stemmed from new Federal Housing Administration guidance that requires lenders and servicers to expedite the tax-and-insurance default process.

Guttentag, along with National Reverse Mortgage Lenders Association president and CEO Peter Bell, addressed the foreclosure issue in the wake of Steven Mnuchin’s nomination to lead the Treasury Department. Mnuchin had previously been the chairman of OneWest Bank, parent company of the Financial Freedom reverse mortgage arm; between 2009 and 2014, Financial Freedom saw 16,200 HECM foreclosures.

The Financial Freedom portfolio — which was recently sold to an unnamed buyer — saw a 302% increase in foreclosures in 2016, according to the nonprofits’ FOIA data. The groups also pointed out that Joseph Otting, CEO of OneWest from 2010 to 2015, awaits confirmation as comptroller of the currency.

The California Reinvestment Coalition and Jacksonville Area Legal Aid called on HUD to ramp up oversight of servicers, provide more information about tax-and-insurance relief programs, and mandate regular independent audits for originators and servicers.

The groups also expressed support for a bill recently introduced by Rep. Maxine Waters, aimed at preventing senior reverse mortgage foreclosures.

Written by Alex Spanko

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  • Let us be clear. The word “foreclosure” does NOT have “a wider meaning in the reverse space.” In the forward world the death of the last surviving borrower also results in a default triggering the balance due. As to the types of DEFAULT there are few differences between a forward or reverse mortgage ; however, in the reverse world a default by the death of the last surviving borrower is much more common than in the forward world.

    In forward as in reverse, the death of the last surviving borrower does NOT automatically result in foreclosure. Yet if the default is not cured by the estate (trust or a qualified heir), the default caused by the death of the last surviving borrower can result in foreclosure if the default is not timely cured. So the most common CAUSE of foreclosure in reverse is the failure of the estate to cure a default that resulted from the death of the last surviving borrower.

    Confusing the cause of default with the cause of foreclosure could easily result in executors and trustees making poor decisions or delay taking appropriate action. We should not expect those who are not mortgage experts (like executors) and are dependent on proper communication from us to always properly interpret our garbled messages.

  • I’m all for the conclusion of this article, that there needs to be better oversight of reverse mortgage servicers. Anyone that’s been around this business for a while, or speaks with clients (or their heirs) regularly after closing, know that some of these servicers do a really poor job. The repayment process is not communicated clearly to the heirs and they aren’t incentivized to complete a deed in lieu vs. letting the property go into foreclosure. I know NRMLA has made suggestions to HUD on how to better handle the back end of these transactions, and I hope they’ll start to listen with new leadership coming in. Cash for keys could be a really good move if utilized properly.

    What’s odd to me is that you run this inflammatory headline without doing more research on T&I foreclosures vs. foreclosures that are the result of the loan terminating. Are you really telling us that there were 6K foreclosures per year for T&I defaults between April 2009 – March 2016 and then just under 33K from April 2016 – December 2016? I tend to think that the 33K figure is all reverse mortgage foreclosures, the vast majority of which are not foreclosures on borrowers. It would be prudent to separate that figure out, as this article is going to get picked up by other news outlets. The comments from the two organizations that filed the FOIA request, make it sound like the 33K foreclosures were all on borrowers.

    Just the idea that 33K reverse mortgages went into foreclosure in nine months is concerning to me. No wonder FHA is losing so much per year. That this is happening in an increasing real estate market is scary. I’d like to learn more about what’s going on here.

    • Mr. Neumeyer,

      I do not believe the two organizations have reached the correct conclusion based on the (self inflicted and) limited information they chose to use in their analysis.

      Please see my comment to Mr. Spanko dated today in this thread.

  • Mr. Spanko,

    While you did not write the FOIA or make the presentation in the NRMLA Convention, I do ask you to follow up on the issues in the rest of this comment since the increase in foreclosures during the period in question seems to be with HECMs that are already in assignment; thus the issue is not one for lenders but rather for the lender in fact during assignment, HUD. This may not be a problem with servicing or lenders generally but of HUD and its servicer specifically.

    What is meant when the following is stated? “Between April and December 2016, the Department of Housing and Urban Development logged 32,976 reverse mortgage foreclosures?” Where is that number coming from?

    The total HECMs accounted for in either the MMI Fund (those endorsed after 9/30/2008) or the GSRI Fund (those endorsed before 10/1/2008) are reconciled in total in the monthly Single Family Product Report. While HECMs are in either one of these funds, they are referred to as active. There are two ways that HECMs stop being accounted for in these funds and that is either because of termination or assignment. The category of terminations is in two subcategories: 1) Payoffs and 2) Shortfall Claims. Payoffs are full payoffs of the balance due and thus their number have absolutely nothing to do with foreclosures. Footnote 2 of the reconciliation states: “Shortfall claims comprise claim types Foreclosure, Deed in Lieu of Foreclosure, and Mortgagor’s Short Sale.”

    In all of 2016 there were a total of 74,205 HECMs that were removed from active HECM status. 29% were assignments, 38% were payments in full, and 33% were Shortfall Claims which were 24,588 of the total HECMs no longer categorized as active. For the 51 months between June 2013 and August 2017, the average monthly total of Shortfall Claims was just 2,147. So it is highly unlikely that the foreclosures came from active HECMs, those in either the GSRI Fund or the MMI Fund since the total Shortfall Claims for all of 2016 was below the average for a 12 month period in the 51 month period ended 8/31/2017. (As of yesterday August 2017 is the latest Production Report posted by HUD)

    So if the two organizations are right that were just 41,237 reverse mortgage foreclosures recorded during the seven years ended April 30, 2016, what is the source of the unusual number of 32,976 foreclosures recorded in the nine month period ended 12/31/2016? The only answer is the HECMs in assignment.

    So who the two organizations should be addressing their questions and complaints to is HUD and its servicer, not servicers generally. It does not seem that the two organizations looked at the monthly Production Report and reached the wrong conclusion.

    RMD should not be the pawn of even groups who are selected to speak at NRMLA Conventions when their message is misguided as that of these two organizations seem to be. It would seem as if NRMLA should screen speakers more carefully and RMD should do as is done above but also perform minimum research to determine if the claims of speakers seem reasonable.

    So, Mr. Spanko, can you follow up with HUD to determine how many of the almost 33,000 reverse mortgage foreclosures that were recorded in the nine months ended 12/31/2016 were assigned at the time of foreclosure? If so, it appears that the two organizations have not properly followed through in reaching the message they promoted earlier this week. If you can’t please let me know so that I can.

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