USA Today Report Details Difficulties for Reverse Mortgage Heirs

A new in-depth article published by USA Today takes aim at legal and financial difficulties faced by the heirs of reverse mortgage borrowers when trying to pay off the loan balance in order to keep the affected properties.

Based on input from over 100 “tips” submitted to the outlet after its look at reverse mortgage foreclosures in June 2019, the story details several scenarios in which surviving heirs confronted issues ranging from problems with the home’s title, down through paperwork and clerical issues that caused the repayment process to sometimes stretch into being multiple years long.

Issues persist, though new loan refinements are now present

“Most issues can be traced back to faulty loan servicing with an often-revolving cast of loan companies –– the administrative duties of what should be routine disbursements, interest calculations and communications with borrowers or heirs,” the story reads, citing a discussion with Sarah Bolling Mancini of the National Consumer Law Center.

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Mancini also served as a witness in September for a reverse mortgage-centric hearing before the U.S. House of Representatives Financial Services Subcommittee on Housing, Community Development, and Insurance.

“It’s a common problem largely because servicers don’t do a good job of providing clear information to regular people,” Bolling Mancini told USA Today reporter Nick Penzenstadler. “The system is set up and these families should have options to satisfy the loan, rather than lose the home.”

Mancini previously described her issues with reverse mortgage servicing issues in front of the House subcommittee in September, while citing that recent years have also seen new refinements introduced into the Home Equity Conversion Mortgage (HECM) program concerning origination practices, and lender evaluations of a borrower’s ability to repay the loan.

“Reverse mortgages provide an important safety net for older adults to allow them to remain stable in their homes,” she said in her opening statement. “The reverse mortgage foreclosure crisis we are facing now was caused by problematic origination practices that largely have been addressed for new HECM loans through HUD’s requirement that lenders evaluate the borrower’s ability to pay property charges before making the loan (the Financial Assessment requirement) and its 2014 policy that creates some protections for non-borrowing spouses.”

Among some of the borrower heirs highlighted in the USA Today story, they include a fifth generation resident struggling to keep her family’s Maryland home, a New Jersey home being put up for auction without the heirs’ knowledge, a San Diego home which accelerated into default before the heir says she had a chance to properly answer the notice, and a Long Island home that the heir says was foreclosed upon without warning during the time that the “6/3/3” guideline from the U.S. Department of Housing and Urban Development (HUD) was in effect.

Previous coverage

This new story follows upon others previously published by USA Today this past summer, which took a closer look at reverse mortgage foreclosures that resulted in displacements. That 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.

The initial summer coverage of reverse mortgage issues by USA Today received criticism from those within the industry, citing that many borrower protections designed to avert similar issues were not detailed in the stories. The CEO of the National Reverse Mortgage Lenders Association (NRMLA), Peter Bell, also published his own op-ed in the outlet shortly after the initial stories were published.

Engaging in a reverse mortgage transaction constitutes a major financial decision on the part of a prospective borrower. It should be made in consultation with knowledgeable professionals and any family members who may be impacted, and is ideally one part of a larger financial plan, Bell said at the time.

“Lenders never want to make loans that will default,” Bell wrote in June. “We’ll continue working with federal regulators and counseling agencies to ensure borrowers and lenders understand the important responsibilities each has in a reverse mortgage transaction.”

Other industry observers found merit in some of the issues presented by USA Today at the time, including Jamie Hopkins, director of retirement research at Carson Group. Still, that’s not to say that the reporting was without its shortcomings, however, particularly in terms of reverse mortgage program refinements that have been made over much of the past decade, he said.

“The USA Today piece should have noted that some of the issues mentioned in the research have since been resolved or at least addressed by the government,” Hopkins told RMD in June. “Promoting the research and study was great and needed, but it is also needed that they tell the full story, that the government was aware of some of these issues and acted to reduce the number of homeowners that might lose their homes, miss property tax payments, and withdrawal more money than they need at the start of the loan.”

Read the December story at USA Today.

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  • It is interesting how REO homes with low values seem to sit after foreclosure or deed in lieu of foreclosure while higher value REO properties seem to reach the resale market far more rapidly. This the second article on HECMs by USA Today shines a rather uncomfortable light on this subject.

    If I was a servicer, I would work on the most expensive properties first. Why? Because higher value REO properties that just sit have far more financial risk than lower value REO properties. While higher value SFRs, generally have a higher percentage of the value in the land, their value per square foot of improvements are normally higher and thus the costs related to deterioration from abandonment are much higher with higher value REO property. So if your concern is mitigating loss you will put a greater emphasis on getting a higher value REO into the resale market and sold over much lower value REO homes. In fact lower value homes can wait for years as was reflected in the first USA Today article on this subject.

    If you are the heir and think you might see some cash out of the property, the longer you wait for the sale, the greater the anxiety. In most cases, improvements deteriorate quickly and vandals are emboldened the longer an abandoned property sits vacant. So if a lender has a $1,000,000 SFR in its REO inventory and a $100,000 SFR in that same REO inventory and only one of the two can be worked on then by process of elimination, the higher value property will be worked on first to mitigate loss.

    So the servicers are handling things as one would expect where resources are limited. Unfortunately that means where there is a high concentration of abandoned lower value REO homes, the general area can become an unintended victim of blight. It seems the practice of some HECM originators have caused a higher than usual concentration of HECM collateral to sit wasting in value and producing blight. Is there anything wrong with the situation? Most likely not BUT when servicers are less than proactively caring for the concerns of heirs in these potential areas of blight, the PR perception can be miserable as is the case reflected in the first USA Today article.

    While many of us were not even originating HECMs when the HECMs in the USA Today articles, that does not mean we will not take hit for the situation that has developed. How we handle such issues with prospects says a whole lot about us. The situations are not insurmountable but it is up to us to make sure that we mitigate the perception problem.

      • John ,

        If ever wondered what HECM termination and assignment looks like to the general public, just read the most recent USA Today articles on “HECM blight.”

        In the last 5.33 years, there have been over 404,000 HECM terminations and assignments. In the first 25 years of the industry there were about 256,000 HECM terminations and assignments. In the last 5.33 years there have only been about 255,000 HECM endorsements.

        So while there are more humans alive today than the total humans who have died throughout history, there have been about 177,000 more HECM terminations and assignments than there are active HECMs today (about 482,000). An active HECM is a HECM that has neither been terminated nor assigned.

        So the upshot is that the human race is still growing but the same cannot be said about HECMs.

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