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Morals And Reverse Mortgages
Do we have a moral hazard today with reverse mortgage borrowers who have defaulted due to non-payment of taxes and and insurance? Perhaps in some cases. Watch the video for more…
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Most seniors may be slower in old age than they were at the peak of their mental acuity. The edge may not be as sharp but neither is it as dull as so many believe.
Technical defaults are a fact of life. Those who do them have many reasons and incentives for making the decision to default but chief among them is why pay when others are not, particularly when one is under water on his/her mortgage. If there is no actual downside then where is the incentive to pay property charges? Here Dr. Guttentag is absolutely wrong; what does a nonrecourse mortgage have to do with the rest of one’s estate? We taught our seniors well that this is a nonrecourse mortgage which can never impact the rest of their estate.
Are servicers and counselors getting to the bottom of the issue? People are very good in how they protect themselves. Some people think of Bernie Madoff as a great thief. The truth is he was not; he played the game with many flaws except one: never admit to what you are doing. There were many filings and other paper trails that someone with a little curiosity could have followed and exposed “the sins of” Bernie decades ago.
Those going into technical default do not see themselves as harming people directly and indirectly the way good ol’ Bernie did. They most likely believe that FHA insurance covers any shortfalls (because we told them so) and after all haven’t they paid their fair share of taxes and our government thrown away our tax dollars in so many ways? Just look at how much of the Stimulus Package and TARP went to foreign businesses. Seniors are due a break of their own; so what is wrong with creating our own? (Or so some want to believe). Besides if it hurts a mortgage company. don’t they deserve it for the low values their activities placed our homes in?
So is there a segment of defaulters who took advantage of the situation? There is no question that is the case. What percentage? Who knows. But let us not be so unrealistic as to believe it is “less than one percent.” We have heard similar analysis before on exactly how large the sub pool is in relation to the entire pool of outstanding HECMs and swallowed it without objection, hook, line, and sinker. “Fool me once….”
Yes, we may actually implement some tools in trying to weed out potential defaulters but how does that impact the over half million HECMs outstanding today and those will default in the future who are being added to the pool each and every closing with no lender financial assessment applied. Oh yeah, I hear counseling declaring they are already applying financial assessment but how effective is that in stopping those who are likely to default from getting a HECM. Please no more about the value of FIT; in most regards and particularly this one, FIT is next to worthless.
On at least two occasions, General Washington had to have deserters shot. Yes, he actually had very, very few of them shot but nonetheless until he took such action, it looked as if the revolutionary army in the north would evaporate. He was a wise leader who knew how to control the situation against all odds. Today we admire him; then his troops admired but also feared him for cause. Will FHA do the right thing or simply do what they did to the dear woman in Detroit. HUD/FHA had the chance to show it had teeth but failed miserably in saying: “You can live there as long as you want” or words to that effect. Think of the actual lesson that those who are considering technical default learned from that incident.
I love the “Moral Hazard” argument. Please remember just who is raising this particular argument! Those same individuals who have been proven over and over and over again to be the ones who, through using documents they had to forge, have stolen MILLIONS of homes Nationwide. Those same individuals who stacked TRILLIONS of dollars of Derivative Contracts on Billions of dollars of Mortgage Backed Securities so they cold earn(?) super record bonuses, and then bet against the very investments they sold to pension and retirement funds saying they were AAA, those same individuals who walked out of their own obligations, who continually lie about their lack of due diligence and those same individuals that we the taxpayers have HAD (more than once) to bail out. The question must be asked… if THEY think that THEY are not morally wrong… then why shouldn’t WE the People take everything (and I do mean everything) away from them and then jail them either for life or until their death sentence can be exercised? What’s the moral difference? They stole homes making people homeless, they stole retirement accounts, making people paupers. They took the money from good, hard working individuals who had worked and saved all their lives and had finally found their retirement from their daily (for many years) lives and put these people right straight back into financial servitude for the rest of their lives and they have the Gall to even speak of “Moral Hazard”? I am reminded of the saying “watch out pointing fingers, cause when you point your finger… there’s three pointing right back at ya.” Stop the looting and start the prosecuting. These lying thieving bums need a new home…. Prison. And if our Govt. won’t do it, then I pray the citizenry will… but if the citizenry has to do it then I doubt they’ll live as far as prison.