Reverse mortgage loans in the United States territory of Puerto Rico are resulting in non-death-related foreclosures at a rate of nearly one-in-four between 2014 and 2018, an issue magnified by Puerto Rico’s struggles with natural disasters, falling home prices and a lack of understanding relating to the territory’s unique tax exemptions, according to an investigative report published in USA Today.
“An analysis by USA Today and the Centro de Periodismo Investigativo found waves of reverse mortgages headed to foreclosure in Puerto Rico for reasons other than death, the natural way the loans are supposed to end,” the report reads. “Almost one in four reverse mortgage loans failed from 2014 to 2018 over technical snags, according to the Government Accountability Office.”
According to the Puerto Rico Office for Financial Institutions as cited by the news outlet, 80% of 2019’s reverse mortgage foreclosures were non-death related, and resulted instead from tax defaults, insurance or occupancy issues. Nationwide, that figure is closer to 15% according to USA Today’s analysis. The dominant lender in the region, Money House, Inc., has originated almost 4,300 reverse mortgage loans of the island’s full 10,800 loans through the end of last year, the outlet says.
According to data from the U.S. Department of Housing and Urban Development (HUD), Money House originated 1,023 loans in the Caribbean region of the U.S. between fiscal years 2014 and 2018. Its endorsement figures in the region have decreased significantly year-over-year, dropping from over 200 loans in fiscal 2016 to 133 in fiscal 2017. Fiscal 2018 saw the lender record only 36 endorsements, while fiscal 2019 saw that figure drop even further to only 23 loans in the region.
The report also contends that Money House loans came with higher service charges when compared with other regions of the country, based on federal loan data from 2008 and 2009, though those fees were ultimately discontinued as lenders and servicers “became more efficient,” according to a Money House spokesperson to USA Today.
A language barrier also creates issues in terms of product understanding by borrowers, according to Tara Twomey, attorney at the National Consumer Law Center to USA Today. Twomey trains attorneys in Puerto Rico who will defend their clients specifically against foreclosure.
“The system with reverse mortgages is not set up for success here,” Twomey told USA Today. “Seniors face compounding challenges, with a complicated product mixed with a language barrier, natural disaster and a lagging economy.”
The report also details that seniors in Puerto Rico encountered significant difficulties with reverse mortgage loans stemming from the onslaught of Hurricane Maria in 2017. In response to the devastation, the HUD instituted a moratorium on foreclosures through March of 2018 for all forward and reverse loans. That deadline was extended twice: first to mid-May, and then once more to late August.
The moratorium was not extended again afterward, and it led to new actions on the part of financial institutions shortly thereafter.
“Wall Street investors and banks started filing foreclosure claims almost immediately,” USA Today writes.
There may also be an issue for reverse mortgage lenders who are unfamiliar with certain tax exemptions that Puerto Rico residents have access to, which can lead to consequences for their ability to remain in the home under the terms of the loan, the outlet says.
“The reverse mortgage requirement that borrowers keep current with local property taxes conflicts with special tax exemptions in Puerto Rico,” the report reads. “Thousands on the island do not pay taxes under agreements such as homestead tax exemptions, intended to protect homes from becoming unaffordable for low-income, senior or disabled residents. When new servicers aren’t aware of those arrangements, the consequences can be devastating.”
Read the report at USA Today.