USA Today Investigates Reverse Mortgage Foreclosures, Evictions

A new in-depth investigation on foreclosure actions related to reverse mortgages published late Tuesday by USA Today paints a bleak picture surrounding the activities and practices of the reverse mortgage industry, but also relates some questionable and out-of-date information in key areas highlighted by the investigation, according to industry participants who spoke with RMD.

The investigative piece was the first in a new series of articles released by the outlet, touching on subjects including “questions to ask before getting a reverse mortgage,” ways to “fix” the reverse mortgage program, and details on how reverse mortgages work.

Referring to a wave of reverse mortgage foreclosures that predominantly affected urban African-American neighborhoods as a “stealth aftershock of the Great Recession,” the investigative article focuses on nearly 100,000 foreclosed reverse mortgages as having “failed,” and affecting the financial futures of the borrowers, negatively impacting the property values in the neighborhoods that surround the foreclosed properties.

Advertisement

In a related article, the publication details the various sources from which it drew information and the methodologies used to reach their conclusions, including some of the challenges involved in such an analysis.

The article authors detailed the ways in which they went about their information gathering, which included inquiries of the Department of Housing and Urban Development (HUD). However, some of the interpretations based on that data are largely out of date, according to sources who spoke with RMD about the coverage.

Non-borrowing spouses

A major component of the USA Today investigation revolved around a non-borrowing spouse who was taken off of the liened property’s title in order to allow for the couple’s access to a higher level of proceeds in 2010. When the borrowing husband passed away in 2016, the lender instituted a foreclosure action that has resulted in the non-borrowing wife having to vacate the property.

“Even when both husband and wife are old enough to qualify, reverse mortgage lenders often advise them to remove the younger spouse from loans and titles,” the article reads. The article does not address protections implemented in 2015 to address non-borrowing spouse issues.

In 2015, the Federal Housing Administration (FHA) released a series of guidelines that were designed to strengthen protection for non-borrowing spouses in reverse mortgage transactions. In the revised guidelines, lenders were allowed to defer foreclosure for certain eligible non-borrowing spouses for HECM case numbers assigned before or after August 4, 2014.

Lenders are also allowed to proceed with submitting claims on HECMs with eligible surviving non-borrowing spouses by assigning the affected HECM to HUD upon the death of the last surviving borrower, where the HECM would not otherwise be assignable to FHA as part of a Mortgagee Optional Election Assignment (MOE).

A lender may also proceed by allowing claim payment following the sale of the property by heirs or the borrower’s estate, or by foreclosing in accordance with the terms of the mortgage and filing an insurance claim under the FHA insurance contract as endorsed.

Foreclosure vs. eviction

“A foreclosure is a failure, no matter the trigger,” said one of the article’s sources.

Multiple sources who wished to remain unnamed told RMD that positioning a foreclosure as a “failure” of the reverse mortgage is itself misleading particularly when taking a borrower’s specific circumstances into account, and that the article appears to, at times, conflate the terms “foreclosure” and “eviction.” One of the USA Today article’s own sources also added a perspective on a perceived incongruity between the use of the terms.

“There is a difference between foreclosure and eviction that isn’t really explained in the article,” said Dr. Stephanie Moulton, associate professor of public policy at Ohio State University in an email to RMD. “We would need to know the proportion of foreclosed loans that ended because of death of the borrower, versus other reasons for being called due and payable (including tax and insurance default).”

HECM evolution since the Great Recession

One of the factual issues underlying some of the ideas of the article is that it presents older problems of the HECM program in a modern context, without addressing many of the most relevant changes that have been made to the program in the years since many of the profiled loans were originated, particularly during a volatile period for the American housing market: the Great Recession.

This was observed by both industry participants, as well as Moulton.

“The other thing to keep in mind about this particular time period is the collapse of home values underlying HECMs that exacerbated crossover risk—which would increase the rate of both types of foreclosures,” Moulton said. “And, this was prior to many of the changes that have been made to protect borrowers and shore up the program, including limits on upfront draws, second appraisal rules, and financial assessment of borrowers.”

This includes the aforementioned protections instituted for non-borrowing spouses, in addition to changes including the addition of a financial assessment (FA) regulation designed to reduce persistent defaults, especially those related to tax-and-insurance defaults that regularly afflicted the HECM program in years prior to its implementation. These newer protections received only cursory mention in the USA Today article.

Industry response

The National Reverse Mortgage Lenders Association (NRMLA) is preparing an industry response to the ideas and conclusions presented by USA Today, according to a statement made to RMD.

“A reverse mortgage is one potential and essential component for many Americans seeking to fund retirement,” said Steve Irwin, executive vice president of NRMLA in a call with RMD. “NRMLA and its members are committed to working with all stakeholders to continually improve the HECM program. NRMLA is developing a response to the piece.”

Read the full investigative article at USA Today.

Companies featured in this article:

Join the Conversation (8)

see all

This is a professional community. Please use discretion when posting a comment.

  • Sadly, this USA Today article masquerades as ‘investigative journalism’ being in fact a biased hit piece making use of selective reporting, willful omission and outright racial and class division- all in the effort to garner more clicks and increase their advertising revenues. Mission accomplished USA Today.

    • You nailed it, Shannon. USA Today took what might have been an indictment of an individual practice or lender and turned it into a smear of the entire program and industry. You can bet that NRMLA’s response won’t get the exposure that this piece does, from USA Today or anyone else.

  • Monthly I visit about 20-30 HECM borrower properties in early and late stage foreclosure and track a few hundred within 50 miles of my office. A significant number of these that go REO are voluntary & uncontested foreclosures.

    More than a few times I’ve told the owners who had vacated or their heirs that $100,000K in net equity could be returned to them after sales costs – and they said no thanks. One lady that could have received almost $300,00K asked me to call the servicer and tell them to speed up the foreclosure!! And then there are the low-equity or underwater properties that have to be probated so it makes economic sense to abandon to foreclosure.

    Yes, I do see a lot of tax and insurance default foreclosure on occupied homes, but there is no rush to take the home . I often go in these properties and see stacks of unopened letters from the servicer, yet the borrower will invariably say they never got any warning until the NOD dropped.

    I’d venture that completed foreclosures of borrower occupied properties is probably very low. Some of the defaulted borrowers I’ve relocated or seen removed by public administrator were living in absolutely horrible & filthy conditions. Perhaps foreclosure served as an emergency signal for help.

    Much could be written on this topic as I expect HECM defaults to dramatically increase in the coming years. Also the danger from HERO / PACE liens puts RM borrowers at particular risk and I’m seeing an increase in these defaults.

      • Home Equity Renovation Opportunity (HERO), Property Assessed Clean Energy (PACE). These are contractual assessment liens attached to the home’s property tax bill for “improvements” like solar panels, reflective roofing and paint, low-e windows, energy efficient HVAC, etc.

        No money down and minimal underwriting standards. Particularly attractive to HECM borrowers who are tapped out on their credit line. However it not unusual to see taxes triple leaving the borrower unable to pay and in default. I’ve seen a few that went from around $1200 to $8-10K a year.

        Other problem is these liens are specifically prohibited by the HECM TD putting the borrower in technical default. Also the lien survives foreclosure. In my opinion it should also prevent assignment to HUD leaving the servicer & beneficiary in a tough spot.

  • When it comes to the non-borrowing spouse there are three different Mortgagee Letters that apply. This comment looks at them by chronological order of posting on the HUD website. Under all three, a deferral is only available to a surviving qualifying eligible non-borrowing spouse following the death of the borrower. No other event (such as 1) the borrowing spouse no longer meeting the residency requirement or 2) a foreclosure due to an uncured default for not paying taxes and insurance) will trigger deferral. Also any spouse marrying the borrowing spouse following the close of the HECM is automatically disqualified for deferral under that HECM.

    The first Mortgagee Letter posted about non-borrowing spouses was ML 2014-07 which was posted on April 25, 2014. ML 2014-07 applies to all HECMs with case numbers assigned after August 3, 2014 but before January 12, 2015. Under this ruling if the non-borrowing spouse meets its requirements then a deferral must be granted.

    The second is much like the first. ML 2015-02 was posted on January 9, 2015. It applies to all HECMs with case numbers assigned after March 8, 2015. It introduces new nomenclature and revises much of ML 2014-07 but keeps in place the mandate that if an eligible non-borrowing spouse qualifies for deferral that person must be granted deferral.

    There is a gap in the first and second Mortgagee Letters as to what Mortgagee Letter applies; however, the second Mortgagee Letter, ML 2015-02, does fill in that gap. This provision only applies to HECMs with case numbers assigned after January 11, 2015 but before March 9, 2015 (in this comment, that time period is referred to as the “gap period”). ML 2015-02 mandates that non-borrowing spouses whose case numbers were assigned during the gap period must meet the requirements of ML 2014-07 unless no later than closing, the non-borrowing spouse chooses that the rules of ML 2015-02 apply.

    The third Mortgagee Letter is ML 2015-15 and was posted on June 12, 2015. It applies to all HECMs with case numbers assigned before August 4, 2014. The most significant difference between this Mortgagee Letter and the other two is that even if a non-borrowing spouse meets its requirements for deferral, the non-borrowing spouse does NOT qualify for deferral UNLESS the mortgagee agrees to it by electing the provisions of the Mortgagee Option Election Agreement. So for those subject to this Mortgagee Letter, meeting its requirements does not mean automatic deferral.

string(107) "https://reversemortgagedaily.com/2019/06/12/usa-today-investigates-reverse-mortgage-foreclosures-evictions/"

Share your opinion