Despite Concerns, Reverse Mortgage Impact in Puerto Rico Minimal

Some advocates and lenders have warned of a coming foreclosure crisis in Puerto Rico, but one top lender on the island says reverse mortgage borrowers rode out the recent storm much more easily than their forward counterparts.

Puerto Ricans are still cleaning up in the wake of Hurricane Maria, which made landfall on the U.S. territory as a Category 4 storm last fall. In response to the devastation, the Department of Housing and Urban Development instituted a moratorium on foreclosures through March 19 for all forward and reverse loans — and as the deadline approaches, some have sounded the alarm about the potential impact on homeowners.

“When I speak with my family in Puerto Rico, I hear the desperation in their voices,” New Jersey resident Maribel Soto told NJ.com last week. ”They don’t know when they will find employment again and when they will have stability in their lives. It’s unjust that companies are taking advantage of people at such a moment.”

Advertisement

While forward mortgage borrowers face a rough road making payments going forward, David Levis — president and CEO of the San Juan-based reverse mortgage lender The Money House, Inc. — said Home Equity Conversion Mortgage holders generally won’t face a similar fate.

“We haven’t had any issues with a borrower losing their entire home,” Levis said. “It’s because of the fact that most, if not all, of reverse mortgages in Puerto Rico were given to people who have cement, concrete walls.”

Of the thousands of people who have obtained reverse mortgages through The Money House, Levis said only one experienced storm damage sufficient enough to raise an issue. Otherwise, most homeowners with HECMs have only experienced minor damages with repair costs in the $1,000 to $2,500 range — and homeowners’ insurance companies have been paying out claims quickly.

In addition, Levis noted that homeowners in Puerto Rico generally only pay their taxes and insurance fees once or twice per year, and since residents have been granted a wide variety of storm-related exemptions — including credit cards and utility bills — many had the cash on hand to prioritize those payments.

“The reverse mortgage program was pretty safe, because of the structure of the program,” Levis said.

Single-family homeowners have benefited from decades of smart planning, according to Levis. After the island was battered by Hurricane Hugo in 1989 and Hurricane Georges in 1998, local officials strengthened building codes and homeowners increasingly opted for the safety of concrete-walled homes over more vulnerable wooden structures. Those storms also destroyed a significant amount of wood-framed homes, thinning out the overall proportion of the properties in the island, Levis said.

While Levis hasn’t seen too many reverse mortgage-related issues, other lenders — both forward and reverse — may have no choice but to initiate proceedings once HUD suspends the moratorium. Kristen Sieffert, president of Finance of America Reverse, told NJ.com that HECM lenders aren’t entirely in control the foreclosure process: HUD remains at the wheel.

“Given that ]FAR] does not have control over foreclosure timelines with respect to insured loans, we believe the best outcome for homeowners in this area would be an extension of HUD’s foreclosure moratorium, and intend to advocate for this extension directly to HUD,” Sieffert said.

Written by Alex Spanko