Guttentag Questions the Definition of a HECM ‘Foreclosure’
“Whoever controls the language controls the debate”. The purported ‘epidemic’ of reverse mortgage foreclosures has long been a staple for major media outlets to attack the reverse mortgage as a risky and dangerous loan. Closer to home, the incidence of HECM foreclosures has been often cited as one justification for increased restrictions, product reengineering, and the financial assessment underwriting guidelines.
The media loves a good drama. Find a villain and add some emotional tension and you have a headline that is click-worthy. Such a scenario played out in a recent article on Bloomberg.com entitled “Mnuchin’s Reverse Mortgage Woes Blemish Record of Treasury Pick.” Jack Guttentag, aka the Mortgage Professor, was intrigued. The headline is timely since Steven Mnuchin was recently announced as president-elect Trump’s pick for Treasury Secretary. Mnuchin’s blemish in the article centers on his acquiring of IndyMac Bank in 2009 and with it Financial Freedom. Now we can see the ‘reverse mortgage’ connection that Bloomberg hints may point to alleged unethical business practices. Financial Freedom “has carried out 16,220 foreclosures since 2009, or about 39 percent of the country’s reverse mortgage foreclosures, according to HUD data obtained by the California Reinvestment Coalition…” Guttentag was skeptical that one lender could account for such a large percentage of HECM foreclosures.
What ‘foreclosure’ really means
Skeptical, Guttentag researched for the total number of HECM foreclosures since 2009. He uncovered a report provided by the agency to a consumer group in response to a freedom of information request. Since April 2009, there have been 41,237 reverse mortgage foreclosures accounting for roughly 4% of all…
5 Comments
Past time for this definition that really doesn’t say anything- to be considered. I have also heard that since FHA inception of Reverse lending that over 30 billion has been raised through PMI payments yet only slightly more than 3 billion has been spent on foreclosure’s. Does anyone out there know the truth of this and what happened to the money?????
Just a hit piece to smear the new treasury nominee. Yes HUD should more precisely define what a foreclosure is. As they say the devil is always in the details. I’m sure Bloomberg figured why confuse a good headline with the facts. Investigative journalism is dead.
Congratulations to Jack Guttentag for finally bringing the light of day to this subject. So many “thought leaders” in our industry have promoted this false data for far too long and without the efforts of Jack most of us would never have been made aware of this incredibly important information. So much for the totally false assertions that tax and insurance default are the culprit in hecm foreclosures. As for insurance claims, you can blame the bush administration for driving our economy into the ditch that resulted in a 40 percent devaluation of real estate that the hecm program was not designed to deal with. The fixes have been too late and no longer have a legitimate role in shoring up the program…..
Excellent work by Jack Guttentag and excellent reporting by Shannon Hicks.
This topic first interested me in 2009. Many borrowers wanted to know what would happen if the loan became due and payable at a time when houses weren’t selling. The three lenders I spoke to all said that they were not actively foreclosing after 180 days or even 360 days. So why were the numbers so high?
The HECM mortgage points to the source of the statistical problem. It says, “Lender shall not have the right to commence foreclosure until Borrower has had thirty (30) days after notice to either: [four options for settlement]” I’ve always assumed that lenders commence foreclosure after 30 days regardless of the eventual outcome. Hence, virtually every termination is in foreclosure. Just what Jack’s research found.
Great information Shannon,
I asked the question about the foreclosure ratios back in your article dated December 10, 2012 called “Saving the Reverse Mortgage. What If” I knew that Reverse Mortgages were not the BIG problem to the depletion of the FHA mortgage insurance fund. I was wondering about filling a freedom of information request then for the ratio of Reverse Mortgage foreclosures compared to the foreclosures ratio of homes of homeowners with only 3% down back then.
I agree with the only 4% of all HECMs are true foreclosures since 1999 is more accurate, so now my guess is that compared to regular FHA foreclosures the percentage Reverse Mortgages foreclosures are probably less than 1% of all FHA foreclosures, yet seniors pay an upfront 2.5% FHA mortgage insurance premium and have to put at least 40% down and still pay the same 1.25% mortgage insurance rate as the ones getting regular FHA loans by only putting down 3%.
I feel that the seniors are being discriminated against with having to put more the 3% down and still having to pay the same FHA mortgage insurance 1.25% rate. I also feel that FHA should change the lending limits for Reverse Mortgages back to the pre-2012 levels where a person only had to have about 35% of their homes paid for. A lot of seniors do not qualify now.