Reverse Mortgage

A number of case spokesmen fear that the number of forced sales among a group of senior citizens has increased sharply: those who have taken out reverse mortgage mortgages. California Reinvestment Coalition (CRC) recently announced that reverse loan foreclosure sales rose 646% in 2016. CRC' s reporting - a federation of 300 state non-profit groups dealing with justice and accessibility concerns - was based on information received at the end of last year from the U.S. Department of Housing and Urban Development (HUD) as part of its Freedom of Information Act application to the agency's Home equity Mortgage ( "HECM") programme.

Reversed mortgage loans provide house owners 62 years of age and older with an opportunity to earn real estate by raising capital against their home capital, drawing down the proceeds as a firm recurring month's installment or line of credit. Banks can also provide a reverse mortgage for house owners 62 years of age and older. In the event of the borrower's death, the inheritors can either pay back the outstanding balance or hand the house over to the creditor.

The majority of reverse lending is through HUD's Home Equity Conversion Mortgage (HECM) programme. The HECM lending has declined significantly in recent years, in part as a result of a range of HUD-initiated reform measures designed to reduce the pecuniary risks to the FHA scheme, which repay creditors if they are unable to get back the full amount at the end of the term.

In August last year, HUD last promised an augmentation of primary insurances premium payments by borrower and a tightening of credit lines for new HECM-credits. According to the CRC, HUD figures indicate 32,976 HECM executions between April 2016 and December 2016 - almost as many as between April 2009 and April 2016.

Mean forced sales per month rose from 490 in 2009 to April 2016, but then rose to 3,664 in the following nine month period. While HECM mortgages do not involve repayment, borrower failures to pay real estate taxes, pay insurances, and repair their houses may result in late payment.

As a result of the CRC analyses of the HUD figures, the number of default cases likely to result in an unintentional cancellation of loans rose from 45,381 in the prior year to 89,064 in 2016. It is likely that this growth results from HUD's movements, which required creditors to take measures against debtors that did not fulfil the credit conditions.

Obviously, non-payment of real estate tax could lead to enforcement with or without HECM. "You could be losing your home in this predicament, whether you have a HECM credit or not," said Lori Trawinski, bank and financial manager at AARP Public Policy Institute. However, the programme, known as Mortgagee Optionale Choice, is optionally available to creditors.

"It' s discrete for creditors - and there is no demand that credit service staff let them know that they have an agreement to let those guys stay," said Kevin Stein, vice president of the CRC. According to HUD, the large number of forced sales occur as part of the regular closure of HECMs after the last remaining debtor has died.

If this happens, the credit is due; the inheritors have the possibility to repay the bill if they want to keep the cottage. The HECM lending climaxed in 2008, so any recent rise in enforcement could mean that some of these mortgages are likely to fall due now. "Borrower die," said Peter Bell, chairman of the National Reverse Mortgage Lenders Association.

According to HUD, 99% of HECM reported enforcement from April 2009 to December 2016. However, this number contradicts the Reverse Mortgage Insight study of credit history, a company that examines sector trend statistics; it shows that among enforcement transactions concluded between 2009 and 2017, 62 per cent were due to the mortality of the debtor; 22 per cent were caused by loss of taxes and insurances; and 15 per cent were due to the debtor not occupying the house.

However, the complex nature of HECM mortgages is one of the reasons why they are not my preferred choice in the finance toolset for pensioners who do not have enough money; down-sizing by sale and relocation to a smaller house - or even rental - is a simpler one.