1/20/2011 12:20 PM ET|
Could Grandma lose her house?
Many seniors who took out reverse mortgages have not been making property tax and insurance payments -- and their homes could be foreclosed on as a result.
The government is moving to head off a growing problem with its reverse mortgage program. Large numbers of elderly borrowers -- perhaps thousands -- face possible evictions from their homes because they've stopped making property tax and home insurance payments. While homeowners with reverse mortgages are freed from mortgage payments after taking out the loans, they remain liable for property tax, home insurance and maintenance expenses. Failure to make these payments can trigger foreclosure and possible eviction.
Most reverse mortgages are made by the Federal Housing Administration's Home Equity Conversion Mortgage program. It provides insured protection of reverse mortgage loans made by private lenders and is available when the youngest homeowner is at least 62 years old and has substantial equity. The FHA is part of the U.S. Department of Housing and Urban Development. The volume of HECM loans has averaged about 100,000 a year recently but dropped last year as growing loan losses prompted the FHA to tighten its loan underwriting standards. The most recent FHA report lists nearly 520,000 active reverse mortgages.
Lenders in the HECM program are responsible for keeping all tax and insurance payments current, in compliance with the government's rules for insuring the loans. If homeowners stop making payments, lenders are allowed to access any remaining home equity to pay taxes and insurance premiums. Once homeowner funds are exhausted, lenders are legally required to advance their own funds for such payments and seek reimbursement from homeowners.
However, the HECM insurance program has come under growing financial pressure because of the weakness in housing values and continued financial pressure on borrowers. While the problems are serious enough to have prompted FHA intervention, a HUD spokesman said the agency does not know how many loans are delinquent or the severity of delinquencies. It has ordered reverse-mortgage lenders to provide the agency with detailed delinquency reports by Feb. 7.
Up to 20% of HECM loans may be in some stage of noncompliance, according to unconfirmed industry reports cited by an executive at one of the counseling agencies that is working to help delinquent borrowers. Peter Bell, the president of the National Reverse Mortgage Lenders Association, did not respond to repeated requests for comment. Reverse Market Insight, which works with many lenders to provide statistical reports on the reverse mortgage industry, did not respond to a request to comment on the extent of the delinquency problem.
In recognition of the problem, HUD issued rules in early January to formalize the foreclosure process. The rules direct lenders to notify all delinquent customers by April 29 of their need to take steps to solve their problem or face foreclosure. The agency also said it's providing nearly $3 million to several consumer groups to offer stepped-up counseling to troubled borrowers.
"We understand that some senior citizens have not paid their taxes or insurance for some time and may be at risk of losing their home," FHA Commissioner David H. Stevens said in a press release explaining the new policy.
"Over time, however, these unpaid debts and lender advances have resulted in an untenable situation that could put the FHA Insurance Fund at risk and result in foreclosure proceedings against delinquent seniors," the press release said. "While the guidance . . . is intended to help elderly homeowners avoid foreclosure, lenders may have no choice if these defaults are not cured."
The prospect of evicting 85-year-old widows from their homes is a looming human- and public-relations crisis, agrees Barbara Stucki, the head of home equity initiatives for the National Council on Aging, one of the consumer groups being funded by HUD. "No one wants this to happen."
"People are just really struggling to make ends meet," she explains. The extent of the problem won't really be known until the NCOA and other counseling agencies find out more about specific consumer problems. Counselors will work with lenders and consumers' other creditors to develop repayment plans that allow seniors to stay in their homes. There are, however, no funds available to help consumers repay missed tax and insurance payments.
"To avoid problems with unpaid property charges in the future, FHA recently enhanced the HECM program's pre-closing counseling requirements," the HUD press release said. "Counselors must now place a greater focus on educating borrowers on how important it is that they fulfill the terms of the mortgage, including the requirement that borrowers make timely tax and insurance payments. In addition, counselors now employ a new financial tool which helps identify potential budget shortfalls."
According to the HUD letter to lenders, some consumers may have up to two years to repay tax and insurance funds to their lenders. The agency is urging lenders to foreclose on loans only as a last resort but noted that foreclosure decisions rest with lenders, not the agency.
Stucki urged reverse mortgage customers to respond promptly if they receive a delinquency letter from their lender. "What we're trying to do is not frighten people," she said. "But they (home occupants) do need to deal with it now and know that there is help out there for them to do this." HUD encouraged lenders to stagger their mailings but to begin getting letters out to borrowers well in advance of the April 29 deadline.
This article was reported by Philip Moeller for U.S. News & World Report.
VIDEO ON MSN MONEY
Your new site still sucks. Why do I click on a link (on MSN's main site) to a story, then have to click on another link to read it? Redundant much? Get with the program.
What this tells you young folks out there is don't get old! We are in our mid 80s and being products of the Depression have worked and saved all of our lives in anticipation of our Golden Years! When it was discovered that we, the seniors, controlled trillions of dollars, outside the financial mainstream, they (the financial system) started lining up like vultures to take what we had by any means possible, including some questionable legal means. The banks, in collusion, on almost a national scale have driven down their interest payouts on our money that they lend at near usury rates to as close to 0% without actually touching 0. Consider 3 years ago the average interest payout on CDs was in the neighborhood of 5% while interest on Savings/Checking stood at 2.25% which was adequate for most people who lived off the proceeds to live. Today as I get ready to roll over a CD, none of the local banks, and these are national bank chains is quoting anything over 1.0% and they have squeezed our Savings/Checking interest down to a staggering .05%! That's 5/100ths of a single percent folks. We have reached a level where it is truly a decision of heat, eat, or medicate which seems to be the fate of all who have lived for the past 80 plus years and is your future, my young friends!
We, who have lived through the Great Depression, gone on to and survived WWII and all in between then and now seem to arrived at where we started since we are in truth but a single major illness, which also is inevitable, from living under a bridge somewhere! Thank you for listening or reading my rant!!
The state of senior services is abysmal. I worked for years making house calls to homebound
seniors and was often the only person who saw a client in the entire week. Sometimes there was a friend, spouse or neighbor involved but more often not. By the time I was called by a
facility to do an evaluation, many of these people were so mentally and physically disabled that making any kind of a cogent decision even with the proper information, was nearly impossible....Yes the banks are greedy and municipalities have no compassion when it comes to collecting the almighty tax dollar but, that is the nature of "the scorpion". They are simply doing what they do. The problem is much deeper. Vulnerable individuals are caught in the middle...Help your elders....one day you too will be old and need the same consideration.
Wouldn't it be great if the politicians worked on commission?
If we (America)make a profit...they get paid..if we don't ...they don't....
They will then auction the homes for pennies on the dollar.
They lender will get any proceeds left over, and the original homeowner will be out on the street with nothing.
This is the problem with property taxes: you don't pay them with property, you pay them with income.
If for some reason you have no income for a while, too bad. Then you find out our benevolent Gov't doesn't allow the dispensation of taxes in bankruptcy.
Of course, the Gov't isn't stupid enough to live by the same rules that the rest of us do.
That's why they are the only debts exempt from bankruptcy. But it makes you wonder: isn't what is good for the goose, good for the gander?
Hey..wait a minute...when you took out the reverse bull$hit..you should have listened ..
They tell you that you must continue to pay the tax and insurance!
When you think it sounds too good to be true...IT IS!
hERE ..WE ARE GIVING YOU FREE MONEY...NO..YOU DO NOT HAVE TO PAY IT BACK?
Are you kidding me?
So when you "lend" money to those banks, which is what you are doing with a savings account or CD, you are competing with the Federal Government to see who will loan the bank the money at the lower rate.
You may think the banks are colluding, but the blame rests with the only monopoly that can make you use their "product" at gunpoint: the Government.
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