A debate over the fundamental safety of the reverse mortgage program is heating up, according to a Thursday report from the Reuters news service.
Citing data from the California Reinvestment Coalition, which showed a 646% rise in reverse mortgage foreclosures in 2016, Reuters columnist Mark Miller explored concerns surrounding the program.
Miller pointed out that the story behind the numbers is slightly more complicated than it appears: New guidance from the Department of Housing and Urban Development that required servicers to make speedy decisions about homeowners in default likely contributed to the significant gain, while HUD has also emphasized that the majority of foreclosures consist of property transfers after the last remaining borrower has died.
Between April 2009 and December 2016, the death of a borrower represented 99% of all HECM foreclosures, according to HUD data.
“Borrowers are passing away,” National Reverse Mortgage Lenders Association president Peter Bell told Reuters.
Still, some have questioned those figures. Reverse Market Insight data shows that 62% of defaults from 2009 and 2017 were the result of borrower deaths, while tax and insurance defaults accounted for 22%. An additional 15% came from borrowers who left the home, according to Reuters.
“It is likely that some of this is due to borrowers passing away,” AARP director of banking and finance Lori Trawinski told Reuters. “But do I think a bunch of them passed away in a single year? No.”
In a statement provided to RMD, Bell said some of the scrutiny was the result of “misleading data analysis.”
“We want to clarify that the most common cause of foreclosure from 2009 to 2017 is the death of the borrower, followed by failure to live in the property,” Bell said. “The number of tax and insurance default foreclosures rose dramatically after HUD enforced policies to call those loans due and payable. However, new loss mitigation practices, combined with Financial Assessment, are successfully reducing the number of tax and insurance defaults and foreclosures.”
Trawinski also pointed out that tax-and-insurance defaults can also happen to homeowners with traditional forward mortgages, and allowed that the reverse mortgage remains a viable option for some people.
“It really depends on what your goals are,” she told Reuters. “If your goal is to stay in your house until you die, a HECM offers a way to do that.”
Miller, meanwhile, wrote that reverse mortgages aren’t his favorite option due to their complexity relative to other strategies — while also acknowledging the importance of home equity to many middle-class homeowners’ retirement plans.
“Downsizing by selling and moving to a smaller home — or even renting — is a more straightforward option,” Miller concluded.
Read the full piece at Reuters.
Written by Alex Spanko