A new bill before the Philadelphia city council would close a loophole that its author says unfairly targets reverse mortgage borrowers.
The proposed legislation, introduced by Councilwoman Cherelle Parker, would prevent reverse mortgage lenders from foreclosing upon homes whose owners have entered into payment plans for back property taxes.
“I know all too well the scourge that reverse mortgages have been on certain neighborhoods in the city,” Parker said in a statement announcing the law. “Unfortunately, it has been quite common for reverse mortgage lenders to swoop in and pay off any remaining real estate tax balance of homeowners even if they are in a payment plan and not delinquent — and then use this as an impetus to foreclose on these homeowners.”
Home Equity Conversion Mortgage borrowers are required to maintain property tax payments and homeowners insurance costs throughout the loan, and can face foreclosure if they become delinquent on those payments.
Reverse mortgage foreclosures have made headlines in recent months after a report showed a 646% increase in these transactions in 2016 as compared to the previous seven-year period. Parker cited that report, compiled by the California Reinvestment Coalition and Jacksonville (Fla.) Area Legal Aid, in her statement announcing the bill. In addition, treasury secretary Steven Mnuchin faced scrutiny over reverse mortgage foreclosures initiated by OneWest Bank, where he served as CEO prior to his stint in public service.
These stories proved controversial in the reverse mortgage industry, with many HECM program advocates — including National Reverse Mortgage Lenders Association president and CEO Peter Bell — pointing out that the term “foreclosures” also applies to situations in which the last remaining borrower dies or voluntarily leaves the property.
The Department of Housing and Urban Development has indicated that the recent spike in reverse mortgage foreclosures resulted from updated guidance requiring lenders and servicers to take swift action on tax-and-insurance defaults. However, housing advocates and other players — including representatives from AARP — have expressed skepticism that the spike resulted solely from increased activity related to dead borrowers.
“It is likely that some of this is due to borrowers passing away,” AARP director of banking and finance Lori Trawinski told Reuters in an article from earlier this month. “But do I think a bunch of them passed away in a single year? No.”
The California Reinvestment Coalition also supported an October bill from U.S. Rep. Maxine Waters, a California Democrat, that sought to require loss mitigation for borrowers in default among other anti-foreclosure measures.
The Philadelphia law would bring the city in line with new regulations from the Philadelphia Department of Revenue, according to Parker, which went into effect this month; under the combined regulations, a homeowner could not be considered delinquent if he or she entered into a payment agreement to satisfy real estate tax obligations.
“It is my hope that these new regulations and my accompanying legislation will protect homeowners by finally putting an end to some of the more unscrupulous practices we have seen from reverse mortgage lenders,” Parker said.
An e-mail to Parker’s office was unanswered as of press time.
Written by Alex Spanko