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RMI’s John Lunde told RMD while HECM endorsements are strong our industry’s production is not quite as robust as one may believe when considering HECM-to-HECM refinances.
Will there be a wave or a trickle of evictions?
A federal ban on evictions expired Saturday, July 31st. Consequently millions of Americans are facing the specter of housing insecurity or homelessness. The financial protections put in place for millions of households throughout the pandemic including foreclosure moratoriums, stimulus checks, and unemployment benefit bonuses only delayed the inevitable for some.
While the federal government has extended eviction and foreclosure protections multiple times, it’s unlikely we will see another intervention. However, as we are recording today’s show we should note that anything can happen. Case in point- the rapid increase of new cases of the Covid Delta Variant led the CDC to reverse its recent mask guidance for vaccinated individuals. While Covid hospitalizations and deaths had dropped precipitously the government could justify further stimulus and housing protections due to the potential economic impact of the Delta variant strain.
While eviction moratoriums are scheduled to end on July 31st struggling homeowners have until…
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September 30th to request a mortgage forbearance. Homeowners who obtained a forbearance last spring have up to 18 months of protection. That means someone who entered forbearance last March would exit forbearance this month. Their choices would be to obtain a loan modification, sell the home, or let the mortgage go into default. Those with an FHA, USDA, or VA loan are not required to make a lump sum repayment of missed payments.
The good news is only 2.9% of all active mortgages are over 90 days late reports the Wall Street Journal. That’s a marked improvement from the 4.4% of households who were delinquent last summer. The bad news is roughly 1.55 million are still seriously delinquent and some of those are over the age of 60. Those who stand the lose the most are those who’ve paid down their mortgage balance significantly over the years and have a strong equity position in the property which would be lost in a foreclosure.
Of all age groups, older homeowners stand to lose the most having accrued significant equity. Census Bureau data shows households aged 45-54 have an average of $70,860 in equity totaling 64% of their net worth. Those aged 55-64 have $103,400 in equity for 61% of their net worth. Homeowners between 70 and 74 have $153,300 in home equity totaling 72% of their net worth. That spells trouble for the struggling homeowner who is delinquent on their mortgage and the opportunity for many to escape potential eviction with a reverse mortgage. This data also confirms that the banks stand to profit the most by foreclosing on older homeowners with substantial equity.
All things considered, we can conclude the following outcomes are likely- There will be a spike in foreclosures across the country, how big we don’t know. Those foreclosures will impact housing values and stand to improve existing home inventory. We can also expect further government intervention and stimulus, especially considering the strong reactions to the Delta variant despite vaccinations. Those emergency measures when added to previous protections will come at a significant economic cost- one that older American’s are ill-suited to absorb.
Moratoriums are winding down and struggling older Americans stand most at risk of losing their accumulated home equity. That’s where you, our viewers, as reverse mortgage professionals can offer a potential remedy to restore housing and financial security.
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When it comes to pending foreclosures for mortgages in forbearance younger Americans are not alone. Many older homeowners are facing the specter of losing their homes.
A Harvard University housing report warns that over 2 million American homeowners who have delinquent mortgages are at risk of foreclosure. As the Covid-19 pandemic ebbs a new contagion of housing insecurity is preparing to spread creating a wave of evictions.
Over 7 million American homeowners were placed under the protection of a foreclosure moratorium as a result of the Coronavirus Aid, Relief, and Economic Security Act (CARES) last spring. The Biden administration extended the moratorium as millions seek a way to modify their loans or find a way to save their homes.
Numerous deadlines have passed and been extended by both federal, state, and local governments. This myriad of ever-changing expiration dates has left many confused and uncertain. However, one thing is clear. The federal government is determined to prevent a wave of foreclosures and evictions as evidenced by a foreclosure moratorium on all federally-insured mortgages until July 31st, 2021.
However, Financial Reg News reports that the Federal Housing Finance Agency (FHFA) is offering borrowers protections after moratoriums end. “FHFA officials announced that Fannie Mae and Freddie Mac servicers would not be permitted to make the first notice or filing for foreclosure that would be prohibited by the Consumer Financial Protection Bureau’s (CFPB) Protections for Borrowers Affected by the COVID-19 Emergency Under the Real Estate Settlement Procedures Act (RESPA), Regulation X Final Rule before the CFPB rule takes effect.” This rule prevents any move to foreclose before December 31, 2021.
When it comes to senior homeowners facing potential foreclosure there’s little if any data. However, it’s no leap of logic to conclude that there are thousands, perhaps tens of thousands of older homeowners who don’t know how to save their homes. And yes, surprisingly, some may not be aware that a reverse mortgage could in fact save the very roof over their head.
Mortgage forbearances are being extended. How will home values and borrowers be impacted once they end?
It’s compassionate and pragmatic. Mortgage forbearance allows borrowers to suspend or reduce their monthly payments, however, delinquent payments must be repaid. The good news is homeowners with a federally or GSE-backed mortgage (FHA, VA, USDA, Fannie & Freddie) are protected from a lender initiating foreclosure until December 31st of this year thanks to the CARES Act. FHA-insured Home Equity Conversion Mortgage borrowers are protected under this provision.
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However, there is a less-publicized provision of the Coronavirus Aid Relief & Economic Safety act; a provision that is certain to have a major impact on the housing market and home values. That provision is the right for the aforementioned homeowners to apply for up to six months and if desired another extension for up to 360 days. No documentation of financial hardship is required to qualify. Basically, that means millions of American homeowners will not be making a payment for up to one year. In essence, our government has attempted to stem a tidal wave of foreclosures and slow damage to our fragile economy delaying the inevitable. The silver lining is home values should remain relatively stable during this temporary calm. That’s a win for reverse mortgage originators who can offer more borrowing power with high home values and low interest rates. Home sales slowed to a crawl in this spring as the first waves of COVID-19 hit our shores. Then the summer months brought record-breaking home sales volumes
as a flood of pent up demand hit the market.
But what happens after mortgage forbearances work their way through the system? Some housing analysts predict 1.9 million or 40% of those in forbearance will end up defaulting. That’s a sobering number but nowhere close to the 3.1 million foreclosure filings seen in the 2008 housing crisis which created a glut of housing inventory driving prices down. A correction in housing values is assured in a cyclical real market but it’s unlikely we’ll see home values plummet immediately. The hope is the air will be released slowly from the housing bubble we find ourselves in today. However, eventually, a toll will be extracted from the housing market for the unprecedented shutdown of our national economy.
Housing prices are marching to the beat of a different drum and seniors are part of the new rhythm which is further constraining housing inventory. “Seniors are scaling down at a far slower rate than in the previous, additional constraining supply. “We were predicting that baby boomers, like past generations at their age, would move into apartments, condos, or to their second homes en masse,” says Ed Pinto- Director of the American Enterprise Institute in a recent Fortune Magazine column. “That isn’t occurring. The main reason they aren’t moving is that their adult children move back in and work from the home they grew up in.”
Two things will mitigate and deflation in housing prices. Housing demand and employment. As more Americans regain employment they are more likely to voluntarily decline further mortgage forbearance and resume making payments. All things considered, a gradual deflation is preferable to a sudden bursting of a housing bubble.
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In part two of our exclusive interview with New York Financial advisor Robert Intelisano, we cover the risks of a 30-year mortgage refinance for older homeowners and why partnering with other mortgage and financial professionals may the most effective means to reach distressed homeowners.
Losing a parent is truly a heart-wrenching experience. One that many of you our viewers, and myself have endured. Compounding the grief is the frustration in settling the financial affairs of your loved one. According to a recent column in USA Today last week, some reverse mortgage heirs are finding themselves thwarted in their attempts to purchase their parents home facing conflicting notices, bureaucratic red tape, and foreclosure- even when the family has the means to pay off the loan. Each delay driving up the ultimate loan balance payoff.
Servicing issues are not a new phenomenon. On this show, we have reported on some of the challenges of loans serviced by HUD’s chosen contractors…
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If there’s one fault most salespeople share it is this- a lack of follow up with the borrower after the sale. While many may contact the homeowner after the loan funds, or call to explain the first monthly loan statement- few stay in regular contact with the borrower. A lack of communication or no longer being easily accessible is fertile ground for misunderstanding, frustration, and yes even litigation. Consider for a moment the perception of an elderly borrower who may be panicked over some innocuous notice, or even worse a notice to remedy a delinquent property tax installment. Like most, they cannot easily locate their loan paperwork, just as most 30-year-olds cannot quickly locate their closing documents or even the folder they received from their mortgage broker. An older homeowner is fraught with worry, their adult children may be angry, and most importantly- a situation that may have been quickly remedied gets out of control.
The infamous USA Today expose on reverse mortgages included one instance of a homeowner having their loan called due and payable for a two-dollar deficiency on their property taxes. Two-dollars! Sure, they could reach their servicer- but what if they don’t? Who has egg on their face? The lender, loan officer, and the industry as a whole.
“As an industry overall, we need to do a better job of communicating with our clients. We need to make it easy for them to contact us and reach a live person knowledgeable enough to answer their questions and provide appropriate guidance. This needs to be done at every stage of a loan, from origination thru final disposition”, said NRMLA President and CEO Peter Bell in NRMLA’s publication Reverse Mortgage Magazine. Timely words of wisdom indeed.
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We see many national media headlines on how risky a reverse mortgage can be for older homeowners. Risky? This week we briefly touch on the most common risks that can be found in traditional and reverse mortgages and how most risks can be avoided.
Spending the kids inheritance.
Many formal complaints filed on a federally-insured reverse mortgage are from the adult children or heirs of a borrower. Many are unpleasantly surprised that mom or dad took out the loan only to learn that some or all of the home’s equity has been consumed. In many instances the parents could not cover their daily living expenses and chose a HECM to maintain a sense of financial independence. Often the adult children who are expecting to inherit the home were unable to financially assist their parents financially. While heirs may worry their inheritance is being spent, their parents often face real and more pressing and immediate financial concerns in their non-working years. If the parents were unable to keep their traditional mortgage payments current and lost the home to foreclosure, any remaining equity would be lost for both the parents and children alike…
Additional resources:
| Dan Hultquist article: Can a foreclosure occur with a reverse mortgage? |
| USA Today HECM foreclosure map | NRMLA response to USA Today article |
The following was originally published in November 2011. Despite much of the recent negative news coverage reverse mortgages have helped countless older homeowners avoid inevitable foreclosure and eviction.
Personal success stories are a powerful vehicle to imprint the value of a product or service in potential clients’ minds. The following true tale will brighten your prospects’ holiday season.
A reverse mortgage was a lifesaver for 77-year-old Isidoro, who had been in foreclosure due to the current economy. By the time he contacted Security One Lending, Isidoro was on the verge of losing his home to foreclosure within a few months. He was faced with moving out of his home and trying to find a rental somewhere on a Social Security income of just $800 a month, which would have left him with precious little money for food and other necessities.
Security One’s loan advisor quickly realized that the home’s value was in decline — something many Americans are experiencing now. Chase Bank had tried for the better part of a year to “short sale” the home, with no offers. Fortunately, the bank has a program to accept a reverse mortgage in lieu of a short sale.
Security One Lending negotiated with Chase Bank over several months — and several foreclosure extensions — to ultimately shave a whopping $182,000 from the principal note balance. Additionally, the loan agent was able to drastically reduce the reverse mortgage loan fees to allow the client to qualify, and have his existing Chase Bank loan paid off in full — which kept him from losing his home.
Isidoro retains full title to his home, and can never lose the house due to non-payment. That’s a true holiday gift!
Let’s face it. Foreclosure is an ugly and scary word. Unfortunately, it’s the same word that is commonly used when a Home Equity Conversion Mortgage is terminated- often when the loan balance exceeds the home’s value.
Additional resources:
| Dan Hultquist article: Can a foreclosure occur with a reverse mortgage? |
| USA Today HECM foreclosure map | NRMLA response to USA Today article |
