Are HECM ‘foreclosures’ true to their name?
Plato said, “ a good decision is based on knowledge and not on numbers”. A fitting quote when we examine the number of purported ‘foreclosures’ that have raised the eyebrows and collective concern of lawmakers tasked with overseeing the The Department of Housing and Urban Development’s budget. Speaking before the House Appropriations Subcommittee on Transportation, Housing, and Urban Development last week, HUD Secretary Ben Carson credited the most recent HECM reforms for easing the strain on FHA’s Mutual Mortgage Insurance Fund.
In November 2017 the California Reinvestment Coalition claimed a 646% spike in HECM foreclosures in 2016. During the hearing, Florida’s Rep. Mario Diaz-Balart referenced the study in his opening remarks. Foreclosure is a loaded word and is largely misunderstood when it is used in the context of the federally-insured reverse mortgage or the Home Equity Conversion Mortgage. But just how accurate are the claims that alarmed lawmakers and consumer advocacy groups? Peter Bell, the president of the National Reverse Mortgage Lenders Association which represents HECM lenders said the vast majority of foreclosures do not reflect the actual number of senior homeowners being evicted, but most come from property transfers initiated upon the death of the last surviving borrower. Bell’s statement is reinforced by Reverse Market Insight which tracks reverse mortgage industry data. RMI reports that 62% of defaults or foreclosures between 2009-2017 arose from the death of the borrower while only 22% were initiated from non-payment of taxes and insurance. |
In his February 1st column, Reuters columnist Mark Miller cautions that a significant number of these foreclosures could be attributed to HUD’s requirement that…