Philadelphia Law Would Crack Down on Reverse Mortgage Foreclosures

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.”

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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

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      • The short answer is yes. If the homeowner has delinquent property taxes even if they have an arrangement with the municipality the taxes are still considered delinquent and the servicer will be notified and will end up advancing payment for the taxes. The servicers are obligated to advance payment for delinquent property taxes. period. repayment plan or no the taxes are technically delinquent. The servicer then has to work with the homeowner to try to establish an affordable repayment plan. If the repayment plan is not achievable the servicer then moves on to the foreclosure process. I am working with these HECM default cases on a daily basis.

      • That explains a lot. For the borrower to be compliant with the tax payment rules, It’s just a matter of the borrower entering into a tax payment plan with the lender instead of the city or town to which the borrower owes the property tax.

        This would also seem to prohibit the borrower from using a “tax deferred” agreement with a city or town, where the borrower pays no property tax (for reasons of proven “hardship”) until the property is sold, and/or the owed-tax is paid from the borrower’s estate. There’s also a problem with a “first-lien-agreement” involved, between the city and the lender.

        It seems that “The Reverse Mortgage” is being used more as a political football and for political grandstanding than any legitimate concern for the program itself.

      • Ed,

        What program?

        The borrower is in violation of a mortgage covenant that can turn from merely being a default to becoming a legal cause for foreclosure.

        (You really need to get with your originator to understand what is in those mortgage documents you got at closing unless your mortgage has been assigned to HUD, in which case HUD is the successor lender. You need to read the covenants you have made with the lender when you signed those loan documents.)

        By owning land, there is an inherent obligation to pay taxes to the taxing authorities on land and improvements to the land. In order for lenders to protect their secured interests in the home (and in the case of FHA loans, to protect FHA’s insurance fund), mortgagees are permitted to require real estate and insurance payments to be more stringent than law or contract require.

        The program is insurance between lender and HUD. That is why rules are titled Mortgagee Letters, not Mortgagor Letters.

        HUD has in limited cases allowed lenders the right to accept state deferred payment plans as compliance with the terms of its insurance with the lender. Borrowers need to check with lenders before they assume that a deferred payment plan offered by a taxing authority is acceptable to the lender.

      • What are you talking about? I understand my contract perfectly, and I have zero problems with paying taxes or insurance.

        You need to stop assuming that you know what you’re talking about.

        I merely asked the lady a question about her comments, as she does seem to know what she’s talking about.

      • Ed,

        You seem like a bright guy but you say: “I understand my contract perfectly….” Which contract are you referring to?

        With a HECM, borrowers sign at least six separately identifiable contracts excluding the many warranties they sign in the application. You really should meet with your loan originator to ascertain if you have full and complete copies of everything you signed. It does not sound like it. Nevertheless, I wish I perfectly understood all of the loan docs and I have read all of them several times.

        You claim you asked the woman a question in your reply to her. What was the question? I cannot find a single one in your reply to her.

        Please cite where I accuse you of not being able to meet your property charge obligations? That simply is not true but if I did I would be apologizing to you. I simply would not make such a claim.

        I hope you had a great weekend.

      • Stacy,

        What you are saying is that the borrower has entered into an agreement with the taxing agency but not with the lender?

      • Yes, that’s correct. The challenge is that it is not always easy to negotiate a repayment plan with the lender (servicer).

      • Stacy,

        HUD has hefty penalties for lenders and servicers when they miss deadlines, why not have a deadline with a hefty penalty for this when it comes to lenders? Perhaps you can bring that up to HUD as well as NRMLA.

        If problems lies is on the borrower’s side (which I assume on most occasions it is), why not have HUD arbitrate a quick settlement that its insurance covers. Again perhaps that is a suggestion by you to both HUD and NRMLA.

        Good luck with that.

      • Ed,

        Is it so obvious? I had no idea before reading this article that there was a problem in Philadelphia of this nature. I just want to make sure I understand the fact pattern from someone who has actual experience with it.

        You might have known all about this before it even happened but some of us are still at the stage of ferreting out fact from fiction let alone of being fully caught up.

        But then again wasn’t it you who wrote: “I understand my contract perfectly.” When you only write about a single contract, that sets off alarms about your expertise about HECMs.

        As the guy who knows it all, you should fell free to respond with snarky answers. Yet somehow….

  • I agree with what Raymond just said. I also don’t appreciate the way Councilwoman Cherelle Parker has made our industry look and feel like the “Scourge of the west!

    My God,to read and hear what this woman is indicating and others in the article, you would think we are out to take every senior we can on the block!

    On the contrary, and those people for the most part in our industry have shown a deep concern and passion for our seniors.

    I am personally insulted by what Councilwoman Cherelle Parker stated below:

    “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”!

    Unscrupulous practices by us in the industry, what does she really know! We have more credibility given to our product today than ever before, sure we have are problems but where do politicians think they are so lily White?

    Well, this is one to make you feel fuzzy all over for the day!

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

    • John,

      There is a response honed into me after years in the industry, “compared to what.” That is my response to those who now claim that the credibility of HECMs have risen to any significant extent.

      Another favorite saying of mine is that the proof is in the pudding. So where can we point to where we can see this improvement? Is it just less negative press or comments people make to our face? I would rather see it in increased endorsements and hear it from senior consumer advocates.

      We will know we have more credibility when groups such as California Reinvestment Coalition and Jacksonville (Fla.) Area Legal Aid start vigorously advocating for HECMs to solve senior homeowners’ cash flow shortfalls. How about the FPA officially endorsing one or more of the Standby Reverse Mortgage strategies and applications? Or how about AARP in its publications encouraging to check out HECMs due to their new and improved consumer improvements?

      Peter Bell has said that bad news about reverse mortgages seems to come in cycles or waves. Right now we are in a trough while stuck in secular stagnation.

      We have achieved little to nothing since the last wave. We are stuck. The reputation of the product is in limbo until the next FHA annual report on the MMI Fund or what is happening in Philadelphia becomes a trend.

      If we can’t get higher endorsement numbers now, then when?

      • Good points George, well taken, I appreciate you joining in and commenting back to me. You and your family make it a good weekend for yourselves.

        John Smaldone

      • John,

        My reply was not just directed to you but rather to the overall complacency and apathy we see even among lenders after five straight years of stagnation. We need to fight back by finding new sources of endorsements. Right now everyone seems to think that financial advisers, Realtors, builders and even community banks and credit unions is enough but it isn’t.

        We may have hailed overall improvement in HECMs and hear faint praise of the same from some outside our industry but perceptions are not changing so as to move demand significantly. Demand is substantially down. The question when will we see recovery.

        A few years ago, on at least two occasions a lender vendor told us how they were seeing recovery. That was a joke.

        The silver lining that our cohorts are bathing in is not producing demand. I am sorry but I would rather have adversity with demand than no demand.

        One of my friends was trying to make a point that life is messy with demands. He told us to imagine lying comfortably on grass staring at the sky enjoying the cloud formations with no disturbance around you. He pointed out that we could find such serenity in a graveyard but not in what we were trying to achieve.

        Increasing demand is hard to gain and one has to pick oneself when knocked back by adversity and change. While the product has changed, the need for the product can still do has not.

        The industry will need to fight this potential setback but the call is for more demand; the fight for demand is not over.

    • They’re not talking about originators. Originators don’t foreclose on properties.

      They’re talking about lenders and servicers, who most definitely are unscrupulous enough to deliberately look for ways to unfairly foreclose if they benefit from the action.

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