More seniors taking loans against their homes, costing them
AS SHE was getting on in years and her resources dwindled, Virginia Rayford took out a special kind of mortgage in 2008 that she hoped would help her stay in her three-bedroom Washington, D.C., rowhouse for the rest of her life.
Rayford, 92, took advantage of a federally insured loan called a reverse mortgage that allows cash- strapped seniors to borrow against the equity in their houses that has built up over decades.
But the risks of the financial arrangement are stark - and today the frail widow finds herself facing foreclosure.
Under the terms of the loan, Rayford can defer paying back her mortgage debt that totals about US$ 416,000 ( RM187 million) until she dies, sells or moves out. She is, however, responsible for keeping up with other charges - namely, the taxes and insurance on the property.
The loan servicer, Nationstar Mortgage, says Rayford owes US$ 6,004 in unpaid taxes and insurance. If she cannot come up with it, she stands to lose her home in Washington’s Petworth neighbourhood.
“I’ve cried a million nights wondering about where I am going to be,’’ Rayford said.
Across the nation, an increasing number of seniors are facing foreclosure after taking out reverse mortgages, either because they fell behind on property charges or failed to meet other requirements of the complex mortgage loans, according to federal data and interviews with consumer and housing specialists.
“Folks who had expected to age in place and live for the rest of their lives in their home are now having to scramble to find a new place to live,” said Odette Williamson, a staff attorney with the Boston-based National Consumer Law Center, which advocates for consumer justice for low- income people. “People just don’t know where to turn. It’s heartbreaking.”
The federal Department of Housing and Urban Development, which insures most reverse mortgages in the country, says it lacks detailed data on how many homeowners have lost their homes or are facing foreclosure in the programme, which was launched in 1989 and covers about 636,000 loans. Nationstar declined to comment for this article.
But a HUD report issued last fall found that nearly 90,000 reverse mortgage loans held by seniors were at least 12 months behind in payment of taxes and insurance and were expected to end in “involuntary termination” in fiscal 2017. That’s more than double the number the year before.
Losses in the senior mortgage programme have been a drain on the Federal Housing Administration’s mortgage insurance fund that supports all single-family loan programmes, including traditional forward mortgages and reverse mortgages.
HUD spokesman Brian Sullivan said the agency has tightened the requirements to reduce defaults for new loans going forward. It’s a necessary measure as its reverse mortgage portfolio - whose value can go down with defaults or home prices and property values if homes fall into disrepair - was valued last fall at negative US$ 7.7 billion.
Still, he said, reverse mortgages are “a critical resource for seniors who wish to access their accumulated home equity and age in place.”
Before 2015, the only thing home owners ages 62 and older needed to qualify for a reverse mortgage was equity in their home; lenders weren’t required to determine whether they could afford to maintain their homes or cover tax and insurance payments in the future. Some homeowners used the funds to pay off the original mortgages or ran out of money after covering living expenses over many years. Now HUD requires all borrowers to undergo a financial assessment to qualify, to make sure they will be able to pay their taxes and insurance.
But tens of thousands of troubled loans remain. More than 18 per cent of reverse mortgage loans taken out from 2009 to June 2016 are expected to go into default because of unpaid taxes and insurance, according to the HUD report. That compares with less than three per cent of federally insured loans that are considered seriously delinquent in the traditional mortgage market.
Joanne Savage, an attorney with AARP’s Legal Counsel for the Elderly, said that seniors like Rayford are the victims of a past system. She joins other advocates who argue that HUD and lenders should work harder to help troubled borrowers facing displacement for relatively small debts compared with the value of their homes.
“There needs to be a little more mercy,’’ Savage said. “We are going to have a steady stream of these clients for five to 10 years.”
Under the terms of the loan, Rayford can defer paying back her mortgage debt that totals about US$416,000 (RM187 million) until she dies, sells or moves out. She is, however, responsible for keeping up with other charges - namely, the taxes and insurance on the property.
Foreclosures on these mortgages have been on the rise after a 2011 mandate from HUD requiring loan servicers to work out a repayment plan with seniors in tax and insurance default - or to foreclose if there is no way to help them. In 2015, the federal agency instituted detailed timelines for lenders to work with borrowers.
HUD made the changes to shore up its insurance fund after a federal audit a year earlier that criticised it for allowing lenders to continue paying property charges for defaulting borrowers, adding to the borrowers’ final debt, which resulted in millions of dollars of losses in 2009 and 2010.
In many cases, a lender paid property charges to municipalities for years, in an effort to protect the lender’s investments.
Representatives of the National Reverse Mortgage Lenders Association declined to comment for this report.
Leslie Flynne, a senior vice president at the Houston-based company Reverse Mortgage Solutions, said servicers and lenders are struggling to meet strict timelines HUD set for them to deal with defaulting loans or risk losing money. She said servicers don’t want to displace struggling senior citizens, but in many cases borrowers simply don’t have enough resources to save their homes.
She said seniors who obtained loans before 2015 are more likely to be in trouble. Families, nonprofits, churches and others should work to help them, Flynne said. “You have people who have run out of money, they can’t pay their taxes, and they are awaiting a miracle,” she said.
Why elderly homeowners didn’t pay their taxes depends on their story. Some say they weren’t aware they had to pay taxes and insurance, thinking the charges would be covered by lenders; others knew about their obligations but ran out of money; others still say they think loan servicers have mischarged them.
Advocates of the loans - including celebrity spokesmen such as Tom Selleck and Henry Winkler - say reverse mortgages can help seniors enjoy their later years.
In a recent TV advertisement for American Advisors Group, Selleck says: “Many older Americans are in a tough spot right now. Why not use a reverse mortgage loan to access that equity?”
Borrowers can receive 50 per cent to 66 per cent of the value of their equity, depending on their age and the interest rate, generally set at about five per cent. For example, a 73-year- old with a home worth US$ 100,000 and no current mortgage could receive a loan in a lump sum or monthly instalments, or a line of credit, of up to US$ 57,900, not including closing costs, according to HUD. — WPBloomberg