Reuters Tackles Controversy Over Reverse Mortgage Foreclosures

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.

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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

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  • I too question these numbers. Further, is a natural termination of the loan for reasons such as death or a sale of the house really a foreclosure? For the industry as a whole, we really need to force HUD to change that definition. It looks terrible and those reasons are really not a foreclosure. Failing to pay the taxes, insurance, or maintain the home, those are reasons for a foreclosure, but death?

    Frank J. Kautz, II
    Staff Attorney

    Community Service Network, Inc.
    52 Broadway
    Stoneham, MA 02180
    (781) 438-1977
    (781) 438-6037 fax
    FrankKautz@csninc.org

    • Hi James,

      True, to some extent, however, we cannot always guarantee long-term cash flow security. Like every option, it has to be tailored to the individuals. For example, two people may have enough from both of their social security payments to maintain their current home, but if one dies, even with the HECM it may not be enough. If they downsize earlier, then they have a chance, utilizing a HECM for Purchase, to preserve more of their nest egg and have that long-term cash flow security.

      Once again, though, everything here is individual dependent.

      Frank J. Kautz, II
      Staff Attorney

      Community Service Network, Inc.
      52 Broadway
      Stoneham, MA 02180
      (781) 438-1977
      (781) 438-6037 fax
      FrankKautz@csninc.org

      • Frank,

        My attack on that last paragraph in the post is more about the notation that straightforward transactions will generally produce better results than those that appear to be more convoluted.

        We are in full agreement that each HECM decision should only be based on a thorough analysis of the facts and circumstances of the prospect.

        Sorry, that my point went adrift and that I did not bring the decision back to a facts and circumstances based determination.

  • My question for Mark Miller would be — what good is that equity doing the older homeowner if they have not used it– secondly– I would like to know the % of older homeowners that opt to move especially those over 75. I think the results would be interesting.

  • I agree with Frank Kautz, we have to question these numbers, and the way this is presented does look horrible for our industry!

    We all know that the majority of foreclosures consist of property transfers after the last remaining borrower has died. This is not a fair statistic to use in a foreclosure analysis.

    Many borrowers took out the HECM knowing they were going to stay in their home until death! Contractual it is stated as such so why is Reuters news service and Mike Miller making this issue so dramatic?

    As far as foreclosures due to the lack of paying for property charges, such as taxes and insurance (T&I), we all know that was a cause! However, does not Reuters news service realize in April, 2015 the ruling called the “Financial Assessment (FA) ruling went into effect. It went into effect to primarily to control that portion of foreclosures with reverse mortgages?

    The number of tax and insurance default foreclosures rose dramatically after HUD enforced policies to call those loans due and payable as Peter Bell pointed out.

    Are we seeing a bit of fake news along with over dramatization? This is a terrible report put out by Reuters news service combined with HUD’s cooperation! As Frank stated, HUD definitely needs to change the stigmatization the Reuters news release has caused for our industry!

    This is very disturbing to read, especially when most all of us know this is very misleading information put out!

    John A. Smaldone
    http://www.hanover-financial.com

    • John,

      Here I have to go counter your position. Like HECMs, in the forward mortgage world, the death of the last surviving borrower will normally result in foreclosure. The reason why there are so few of this type of default in the forward mortgage arena resulting in foreclosure is that most seniors pay off or nearly pay off their forward mortgages BEFORE they die; while few HECM borrowers pay anything towards paying down the HECM balance due in their lifetimes and end with a very high balance due.

      A foreclosure is a foreclosure. There is no unfairness in calling a foreclosure, a foreclosure no matter if the foreclosure occurs in the HECM or forward industries.

      What you are addressing is public perception and timing of events that in this case were manipulated by HUD in producing the reported results. (Google illustrates this meaning of manipulation with the following: “The format allows fast picture manipulation.”) So it is HUD’s actions that resulted in the very poor foreclosure depiction that Reuters reports on and misinterprets.

      Everyone in our industry seems to want to rally around HECM financial assessment as if it has cured a huge problem that existed on HECMs that received case numbers in March 2015. I strongly believe that to be near (if not) a hoax.

      If a measurement is made on the default rate for failure to pay taxes and insurance of the following two groups of HECMs exactly five years following the origination of each HECM in each group, it is doubtful if there will be little more than a marginal difference between the average default rate for 1) HECMs with case numbers assigned after August 3, 2014 and before April 27, 2015 and 2) HECMs with case numbers assigned after April 26, 2015 and before October 2, 2017. The ONLY difference between the characteristics of the HECMs in these two groups is financial assessment and that is it. Each group holds the total HECMs for that version of HECM.

      The Reuters information is no doubt reasonably correct. The problem is this correct information is distorted due in part to efforts of HUD to minimize the overall number of defaults from failure to pay taxes and insurance. All we can do about the Reuters report is to challenge the depth of analysis that the reporters did in creating their story and the depth of editing involved in its publication.

  • Are you guys for real? Seriously? Are you not in the business of supporting the HECM or am I wrong and you just report the news about HECM’s? That last paragraph could have been left out. Our seniors are rather easily confused at it is. Putting that kind of information in an article such as this, makes them walk away from a very good option for them. but, they will never know now, because that information just discouraged them from doing something that will enhance their lives. I am left wondering: who exactly is your audience?

    • Ed,

      First off, thanks for reading. And you’re correct that we report news about the reverse mortgage, whether it’s good or bad — our job is to make sure people who work in the space, investors, and all other interested parties find accurate and balanced information about the industry. Part of that is covering what mainstream media outlets report about reverse mortgages.

      Hope you continue reading!

      Cheers,
      Alex

    • Hi Ed,

      As I mentioned above to James E. Veale, whose opinion I always respect and listen to, things need to be tailored to the individual in this business. For some downsizing is the correct option (and I do think purchasing with a HECM for purchase makes more sense than renting for most people). For others staying where they are is good. Personally, I think that salespeople, as much or more than counselors, need to think in this manner. If all you tell people is get a HECM and you will be okay, you are not giving them all of their options. When the counselor does that, it hurts your credibility. If you give them those options to think about, then the counselor is reinforcing your sales pitch, not hurting it. Use what you have to the best of your ability.

      Frank J. Kautz, II
      Staff Attorney

      Community Service Network, Inc.
      52 Broadway
      Stoneham, MA 02180
      (781) 438-1977
      (781) 438-6037 fax
      FrankKautz@csninc.org

      • Frank,

        By now you, most likely, realize our thinking in this regard is fairly in tone on this issue. Seniors need to be presented with their better options including HECMs. As to which is best, each choice should be evaluated in light of the exact facts and circumstances of the prospect.

  • Frank,

    You might be surprised but HECM terminations by payoffs in full have actually exceeded short fall claims during 2017 with payoffs in full exceeding short fall claims by 45.2%. This is an important trend!

    Since reporting this data in the FHA Single Family Product Report from June 2013 through calendar 2016 short fall claims exceeded payoffs in full by 5.6%. Calendar 2017 turned the now 55 month data base to show a 4.7% greater payoff in full rate than short fall claims.

    We are so bombarded with current attacks based on old data, that far too many believe the attacks. 2017 shows the situation on terminations resulting from defaults is now significantly moving in the “right” direction.

    I am less prone to drive the industry for change because its collection of data is questionable and thus of little importance with perhaps the exception of counseling’s on counseling itself. It is HUD who we should be focused on for change in nomenclature. HUD has far more credibility as to its HECM data than any other source

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