When senior citizens opt to take out a reverse mortgage on their homes, most opt to do so in order to generate monthly income and to remove the burden of a mortgage payment from their budget. Now, however, those reverse mortgages, billed as strategies to free seniors from some of the costs of homeownership, could send those same homeowners into default and even foreclosure. According to a letter sent last month to FHA lenders and loan servicers, advances made by lenders to cover “unpaid taxes and insurance” from homeowners with reverse mortgages are putting the FHA insurance fund at risk[1]. As a result, the FHA is conducting a national audit to determine the exact extent of the delinquent payments and will likely have to foreclose on the properties.
According to preliminary numbers from a non-profit credit counseling group, about 5 percent of nationwide reverse mortgages (about 30,000 total) are delinquent. In a reverse mortgage, homeowners must be 62 years of age or older in order to convert their home equity into cash. However, doing so means that they become responsible directly for payment of homeowners insurance and property taxes, items usually collected in a monthly escrow account in a traditional mortgage. Often lenders and servicers advance this money, expecting to collect when the reverse mortgage is ultimately redeemed, but once available funds within the structure of the mortgage run out, the lenders have to advance the money themselves to prevent the home from going into foreclosure due to property tax debts. Now with debts on homes climbing and home values falling, foreclosure may be necessary in order to avoid putting the entire FHA program at risk.
HUD is planning to give homeowners owing more than $5,000 up to two years to pay back the money, and the majority of delinquencies are not that high. It is currently extremely rare to see a reverse mortgage foreclosure because these loans are made only to senior citizens and, Ramona Barbagallo, a Florida reverse mortgage expert, explained, “The last thing anyone wants is for someone to lose their home.”
Do you think that it is fair to foreclose on seniors with reverse mortgages?
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[1] http://www.palmbeachpost.com/money/some-reverse-mortgage-borrowers-risk-going-into-default-1233751.html
