Puerto Rico seniors face financial ruin
Reverse mortgages fail at almost twice US average
SAN JUAN – Reverse mortgages are failing at nearly double the U.S. national average in Puerto Rico, a problem magnified on the island by sliding property values, lenders’ responses after natural disasters and unique challenges ranging from spotty mail service to the lack of some loan materials in Spanish.
Across the USA, the loans – which allow seniors to draw down equity in their homes – are falling into default at unprecedented rates a decade after the onset of the Great Recession, when brokers wrote the most loans in the program’s history.
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. Almost one in four reverse mortgage loans failed from 2014 to 2018 over technical snags, according to the Government Accountability Office.
Totals from 2019 compiled by the island’s office for financial institutions suggests an even greater share: 80% of the last year’s reverse mortgage foreclosures in 2019 were the result of tax defaults, insurance issues or occupancy problems.
Across the USA, about one in seven loans met the same fate during those years, the USA TODAY analysis found. The work was done in partnership with Grand Valley State University in Michigan with support from the McGraw Center for Business Journalism and the Economic Hardship Reporting Project.
Each of the 1,617 foreclosures last year, and hundreds before them, represents a reverse mortgage loan that did not deliver on its promise of stable housing as seniors age.
Nearly 70% of homes in Puerto Rico are occupied by their owners – far above the U.S. national average – creating a large potential market for reverse mortgages. In some parts of the island, including communities ringing San Juan, loan brokers wrote loans at four times the rate of the entire USA.
San Juan-based Moneyhouse dominated the reverse mortgage market there since 2007 and wrote nearly 4,300 of the island’s 10,800 loans through the end of last year. The company used a popular salsa singer for radio and television ads that entice seniors with the prospect of staving off monthly payments to better enjoy their retirement.
After seeing one of the TV spots featuring his favorite singer, José Sajiún Soto, 82, took out a reverse mortgage in 2013 for his home in San Juan’s Las Monjas neighborhood. He regrets it, acknowledging he didn’t read all the fine print.
Moneyhouse has built years of trust with customers, but like other lenders, it sells its loans in the secondary market to U.S.-based servicers.
Soto’s daughter, Ramona, said she routinely has to help her father deal with paperwork with the loan’s Michigan-based servicer, Celink, that arrives
“The system with reverse mortgages is not set up for success here. Seniors face compounding challenges, with a complicated product mixed with a language barrier, natural disaster and a lagging economy.” Tara Twomey, National Consumer Law Center
in a jumble of English and Spanish threatening default for failure to pay homeowners insurance. Celink did not respond to a request for comment.
“They have said like 20 times that something was not paid, and I would send them back evidence that it was paid and a copy of the check,” Ramona Soto said. “It is a problem that they don’t have an office here.”
Some loans issued by Moneyhouse to Puerto Rico residents included extra service charges significantly higher than in other parts of the country, according to an analysis of federal loan data from 2008 and 2009. Those fees were discontinued by the bank and others as lenders and servicers became more efficient, a bank spokesman said.
Company President and CEO David Levis defended the loans as “a godsend” for seniors who didn’t have enough Social Security or pension income to cover their bills.
Seniors on the island face unique challenges, said Tara Twomey, an attorney with the National Consumer Law Center who trains attorneys on defending clients against foreclosure. A reverse mortgage failure can begin with something as basic as the island’s postal delivery, which in some areas relies on building names instead of addresses.
“The system with reverse mortgages is not set up for success here,” Twomey said. “Seniors face compounding challenges, with a complicated product mixed with a language barrier, natural disaster and a lagging economy.”
A tempest in reverse mortgages
Reverse mortgages require that borrowers must live in their home, keep the home maintained and stay current with taxes and hazard insurance – all things thrown into disarray by a hurricane.
Twomey said Puerto Rico seniors ran into trouble with the insurance requirement after Hurricane Maria damaged 472,000 homes in 2017.
“If your house is not habitable because of Maria and your loan requires it be insured while your claims for repair are pending, who’s going to insure that and help you out?” Twomey asked.
The Federal Housing Authority, which backs the loans, issued a foreclosure moratorium for hurricane victims in 2017. That freeze expired in 2018 after two extensions. Wall Street investors and banks started filing foreclosure claims almost immediately.
María Isabel Menéndez Soto, 70, lives in a quiet neighborhood in Arecibo on Puerto Rico’s northern coast. Last year, she nearly lost her small two-story home.
The culprit wasn’t the flooding from Maria’s deluge or the fire that broke out inside her washer/dryer during the hurricane. It was the reverse mortgage Menéndez Soto obtained in 2012.
She did not discover until last September, via a 10-day eviction letter, that her loan was not only in default but had gone through a federal foreclosure proceeding and been sold at auction.
The foreclosure was triggered by an allegation that Menéndez Soto was behind on her hazard insurance. The proceedings had been frozen during the Maria foreclosure moratorium, until September 2018.
New Jersey-based Reverse Mortgage Funding and Celink, its servicer, filed for the foreclosure, saying Menéndez Soto owed about $6,500 on her insurance. Representatives from both companies didn’t respond to questions about the case.
Menéndez Soto said a marshal from the courts showed up with an eviction notice, a moment she described as crippling. “I hid in the room, closed the door and threw myself on my knees, and I said, ‘God, this is in your hands. I do not know what comes next.’ ”
She contacted lawyer friends who referred her to Puerto Rico Servicios Legales, which focuses on low-income help. Attorney Rafael Rodríguez Roselló untangled the situation, identifying various administrative errors and proving that Menéndez Soto had correctly paid for her insurance.
Not all of Rodríguez Roselló’s clients are so lucky. In recent years, as the reverse mortgage market has consolidated to a few major players, lenders have sold off their mortgages – which can lead to a revolving, and confusing, cast of names holding borrowers’ paperwork.
Rodríguez Roselló said all of his cases involve mortgages that have been sold at least once.
“They will sell to a company in the U.S., and that’s where the problems begin: communication, language barriers, lack of documents or evidence,” he said.
Loan companies unaware
The reverse mortgage requirement that borrowers keep current with property taxes conflicts with special tax exemptions in Puerto Rico.
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.
That’s what happened to Luis Nieves, 80, and Ada Guzmán, 75, who took out a reverse mortgage in 2009 on the home they’ve lived in for 55 years in Carolina, on Puerto Rico’s northeast coast.
Under threat of foreclosure, they had to prove several times to their servicer, JB Nutter, that they were exempt from taxes.
Then their insurance company stopped sending proof of their policy to the Kansas City-based firm. In 2014, JB Nutter filed for foreclosure of their house, citing lack of insurance.
The couple provided proof they had a policy but were unable to get receipts showing the payments.
Representatives from JB Nutter did not respond to questions from USA TODAY.
“I cried,” Luis Nieves said. “I couldn’t sleep, thinking about this, that we would have to move.”
After a string of pro bono attorneys could not resolve the case, Rodgríguez Roselló, also working for free, took over in May 2019. He stopped the foreclosure.
Another problem looms: The property, a modest single-story cement home, is among the 7,100 on the island with active reverse mortgage loans hit by lagging property values.
The accruing interest and fees are pushing the mortgage balance close to what the couple might be able to recoup in a sale – a danger zone for reverse mortgages. The median list price in their neighborhood is about $110,000.
Records from the commonwealth’s financial regulator show that many reverse mortgage loans on the island included the projection that home values would rise about 6% a year. Instead, they have slid by about 4%.