Reverse Mortgages - NLNA
Reverse MortgagesConsumer Protection: Predatory and Wealth-Stripping PracticesOctober, 2019
About Reinvestment Fund Our mission is to build wealth and opportunity for low-wealthpeople and places through the promotion of socially andenvironmentally responsible development. Since 1985, Reinvestment Fund has made 1.8 billion incumulative investments and loans. We are supported by over 865 investors that includeindividuals, foundations, religious institutions, financialinstitutions, civic organizations and government. Top AERIS rating of AAA 1 and AA- S&P rating.Business Lines3@ReinvestFundReinvestment.comLending andInvestingPolicySolutionsPolicyMap
Why did We Investigate the Reverse Mortgage LendingMarket?
Reverse Mortgage Foreclosures
Reverse Mortgages in the Philadelphia Region
How Do Reverse Mortgages (aka HECMs) Work?
Traditional Mortgages and Reverse Mortgages comparedSource:ConsumerFinanceProtectionBureau (CFPB)
Traditional Mortgages and Reverse Mortgages comparedSource:ConsumerFinanceProtectionBureau (CFPB)
Traditional Mortgages and Reverse Mortgages comparedSource:ConsumerFinanceProtectionBureau (CFPB)
What Are Advantage and Uses of Reverse Mortgages? Home Equity Conversion Mortgages (HECM), aka Reverse Mortgages, areFHA-insured loans that allow borrowers to access the equity in theirhomes Advantages of Reverse Mortgages: Non-traditional qualifying No monthly mortgage payment Ability to tap into equity Ability to live in their home until death (or sale/non-occupancy) Common Uses of Reverse Mortgages: Supplement monthly income Finance home repair and maintenance Pay major medical expensesSource: Clarifi
How Do I Receive Money with a Reverse Mortgage?Line of CreditMonthly / Annual PayoutLump Sum Take portions of the loan Get a fixed amountout when you wantperiodically while loanprincipal remains Take as much of the loanprincipal as allowed upfront Only pay fees on moneyyou take out Only pay fees on moneyyou take out Higher costs because allfees are upfront Adjustable interest rate Adjustable interest rate Fixed interest rate Limit on amount you can Limit on amount you cantake in year onetake in year one Withdraw as much aspossible in year one; therest in year two Line of credit grows overtime High risk for youngerborrowers of runningout of funds
Who are Ideal HECM Borrowers? A strong commitment to understanding the process Sufficient Equity Knowledge of repairs needed Sufficient Income Knowledge of or already living on retirement income Other Assets Well past the minimum age of 62 Willing to involve family/heirs in the processSource: Clarifi
Borrowers Can Encounter Trouble with Reverse Mortgages Common Reasons for Reverse Mortgage Default (and Foreclosure) Unpaid property taxes. No homeowner’s insurance. Home needs repairs and the homeowner won’t or can’t make them. The homeowner doesn’t live in the home as their primary residence (lessthan 6 months per year) This includes leaving the home for long term medical care Common Challenges for Spouses & Heirs Surviving spouses who are not co-borrowers or listed on the reversemortgage documents must repay the reverse mortgage amounts after theborrower dies if they want to remain in the home. Other heirs, like children or care givers, must repay the reverse mortgageamounts after the borrower dies if they want to live in or inherit thehome.
Borrower Concerns with Reverse Mortgages Product not accurately explained or understood byborrowers. Repair contractors and reverse mortgage brokers workingtogether confuses borrower. Servicers are unwilling to offer Repayment Plans whentaxes or insurance become delinquent choosing insteadto file for foreclosure. Widows and heirs often lose the family home.Source: Senior LawCenter
How Much Benefit do Homeowners Receive?Home Appraised Value1Balance of Existing MortgageHECM Eligible AmountHUD Max 636,150Age of Youngest BorrowerInterest Rate2 -3 125,000724If you are getting a Fixed Rate HECM5 125,000If you are getting an Adjustable Rate HECM:4.5%10-year LIBOR Swap Rate6Lender's Margin7Modified Interest Rate82.35%2.25%4.5%8.0%1049.4%8a Estmated maximum interest rate during the next 10 years8b How many years will it take to reach that interest rate?Principal Limit Factor based on Fixed Rate HECM9Gross Available HECM Credit 10 61,75012 2,5003,23013 2,500.00Total Upfront Costs14 8,230Percentage of Upfront Costs to be Financed15100%Life Expectancy Set Aside160Net Available HECM Credit17Loan Origination FeeOther Closing CostsScenario: 72 year old single homeowner with ahome worth 125,000. Homeowner want to take 15,000 up front and use reverse mortgageproceeds to supplement her income.HUD maxInitial Mortgage InsuranceMax Amount of Net Proceeds Allowable in Year 1 6,000112%60% of TotalAmount of 1st Year Max Net Proceeds Available after Taxes, Insurance, Living Expenses,and Maintenance 18 19 53,52032,11227,022Borrower will receive a net of 53,520 and will runout of reverse mortgage proceeds after about 5½years (expected to live 15½ more years). Ifborrower wishes to leave her home to an heir, heirwill have to pay 95% of market value to reversemortgage lender (expected 180,000).
What did We Learn About the Reverse Mortgage LendingMarket in the Philadelphia area?
Reverse Mortgage Originations in Philadelphia, 1991 - 2017
HECM Characteristics by County, 2009 - 2016TotalHECMInitialMaxInterestRefinanceLine of CreditFixed RatePrincipal ClaimRateLimit AmountHECM Percent HECM Percent HECM Percent Median Median MedianBucks1,344856%1,11683%44633%3.2% 169,000 260,000Chester812618%68084%29336%3.4% 184,000 289,000Delaware1,130504%92782%44039%3.4% 132,000 205,000Montgomery1,420876%1,21986%49835%3.2% 164,000 259,000Philadelphia5,07078015%4,36486%2,97459%5.0% 81,000 125,0001,06311%8,30685%4,65148%3.2% 169,000 260,000Enforcement Area 9,776HECM terms in Philadelphia are very different than in the surroundingcounties
Share of HECM Originations to African-Americans
Where is HECM Lending Concentrated in PhiladelphiaCensus tract% AfricanAmericanLess than 20%AfricanAmericanBetween 20%Between 40%Between 60%& 40% African- & 60% African- & 80% AfricanAmericanAmericanAmericanMore than80% AfricanAmericanAverage #Rev. Mort.8.48.28.414.025.7Median SalesPrice2016/2017 220,000 166,000 124,100 111,900 47,400Median Sales Price2016-2017Quartile 1( 45,000)Quartile 2( 45,000 125,000)Quartile 3( 125,000 215,000)Quartile 4( 215,000)Average # Rev. Mort.15.217.712.69.6
Where is HECM Lending Concentrated in Philadelphia?
Promise Zone, Displacement Pressure, and HECMs
HECM Defaults and R/ECAPs
Concentrations of Philadelphia Older (65 )Households with Lower Income ( 25,000)Source: 2013 – 2017AmericanCommunity Survey
How Do Philadelphia Borrowers Describe their Experienceswith Reverse Mortgages?
How Do HECM Borrowers Describe Their Experience?IntervieweesRace /EthnicityAgeMarital StatusNeighborhoodHomeAssessed Value2017Homeowner 1AfricanAmerican90MarriedLogan 108,300Homeowner 2AfricanAmerican84MarriedWest Mount Airy 405,000Homeowner 3AfricanAmerican79SinglePoint Breeze 81,500Homeowner 4White83SingleFilter Square 679,100Homeowner 5AfricanAmerican70SingleAllegheny West 36,000Homeowner / Heir 1AfricanAmerican78 / 49SingleGrays Ferry 68,200Heir 1AfricanAmerican45SingleKingsessing 60,500Heir 2AfricanAmerican59SingleNicetown 44,000
How Do HECM Borrowers Describe Their Experience?1. Before the Reverse Mortgage2. The Reverse MortgageOrigination Process3. Encountering Trouble withthe Reverse Mortgage4. Resolution of the Foreclosureand Reflection
Before the Reverse Mortgage Homeowners were generally stable, but dealing with a range of stressors. Financial Health Home maintenanceWhile homeowners did not universally feel they were financially or physically as welloff as they could be, they were not worried about losing their homes beforepurchasing a reverse mortgage.One homeowner’s description of hersituation before the reverse mortgage:“I was just in hard times. I was very sick andhadn’t worked in a long time.”
Reverse Mortgage Origination The homeowner hears about reverse mortgages. TV ads; flyers in the mail, word of mouth from friends, neighbors, orrelatives; sales calls from originator. The message is clear: You can borrow money and keep your house. The origination process is smooth, efficient and respectful. No homeowners recalled receiving HUD mandated housing counselingprior to origination.A homeowner’s recollection of how thereverse mortgage was described to him:“Basically, they explained for the most partthat they take a lump sum or somehow, itwould be scattered out through the years.They explained that we would live in thehouse as long as we wanted to andeverything is hunky-dory. We had paid forthe house.”
Encountering Trouble with the Reverse Mortgage Immediate Challenges Homeowners receive much less moneythan anticipatedRequired repairs are expensive and poorqualityChildren try to walk back the reversemortgage after they learn it’s beenoriginated Longer Term Challenges Homeowner receives a default notice andare suddenly at risk of losing their home –typically a tax or insurance issue. Servicers are difficult to deal with Non-responsiveDon’t always explain things in a wayhomeowners understandHomeowners feel disrespected andexploited by the servicerIn most cases, the reverse mortgageoriginator and servicer were not thesame companyA homeowner’s description of how thereverse mortgage went to foreclosure:“I thought that they paid the taxes andhomeowner’s insurance policy. Come to findout I was supposed to pay it, but I didn’tknow. I thought they were paying it. That’swhy they are looking to take our home.”
Resolution and Reflection Homeowners referred to housing counselorHomeowners referred to an attorneyCase goes to Diversion Court and they begin a workout plan.Heirs with good credit can decide to keep the home (or not); heirs who cannotfinance repayment of the reverse mortgage principal are left without optionsLooking back, homeowners regret taking out the reverse mortgage, but they arequick to note that they didn’t feel like they had many other options. At the time,they needed the money and knew of no other source of additional income.A homeowner’s reflection on her experiencewith the reverse mortgage:“If I knew then like I know now, I would’venever gotten a reverse mortgage. But I wasnot in that predicament [then], I’m in thatpredicament now. I needed their resources.”
Grant TeamReinvestment Fund, Policy Solutions: Ira Goldstein, PresidentMichael Norton, Chief Policy AnalystColin Weidig, Senior Research AnalystAl Parker, Senior Research AnalystAdam Steinberg, Mellon / ACLS Public FellowHousing Equality Center of Pennsylvania: Rachel Wentworth, Executive Director Quint Lerch, Test CoordinatorContact: 215-574-5815colin.weidig@reinvestment.com
Common Questions About Reverse Mortgages
How Much Can I Borrow?
How Much Can I Borrow?
What if I Want to Sell My Home?
What happens when the homeowner passes away?* If a homeownerwants to leave theirproperty to an heir,they should speak withthem about how torepay the reversemortgage. The most anheir can be asked torepay is 95% of thehome’s value (or theloan balance,whichever is lower).
Can My Husband/Wife Continue Getting Money and Live in theHouse After I Pass Away? 1. If you and your husband / wife are both on the loan. 2. If only one person is on the loan.
Economic Mobility: Earn, Keep, GrowConsumer Protection: Predatory and Wealth-StrippingPractices Targeting our NeighborhoodsOctober 2019Michael Froehlich, Esq.Managing AttorneyHomeownership & Consumer Rights Unitmfroehlich@clsphila.org
Property Wholesalers
Need help with a homeownership issue?Save Your Home Philly Hotline215-334-HOME (4663)North Phila Law Center1410 W Erie Ave (Broad & Erie)Mon, Weds, Fri 9-12SeniorLAW HelpLine215-988-1242Mon-Thurs, 10-12
Philadelphia Commission on HumanRelations
PCHR Who Are We Established in 1951 under the City’s Home Rule Charter Enforce civil rights laws, particularly the City’s FairPractices Ordinance (FPO), Section 9-1100 of thePhiladelphia Code and resolve community conflicts FPO prohibits discrimination inemployment, housing and publicaccommodations
The PhiladelphiaFair Practices OrdinanceProtected Categories RaceEthnicityColorSexSexual OrientationGender IdentityReligionNational OriginAncestry DisabilityAgeMarital StatusSource of IncomeFamilial StatusDomestic or Sexual ViolenceVictim Status
The FPO – § 9-1108Unlawful Housing Practices For any owner, or any other personwith authority, to refuse to sell, rent,lease or in any way discriminate For any lending institution todiscriminate in lending, loans,accepting mortgages, etc. For any person to print orcirculate any advertisementor use any application thatlimits
The FPO – § 9-1108Unlawful Housing PracticesAlso prohibits: Use of limitations or quota systemsRetaliation and HarassmentProperty transfers designed to circumvent the lawFailures to post appropriate noticesProviding false or misleading infoAiding and abetting violationsSolicitation of sale, rent or lease after refusal by owner
The FPO § 9-1108 (1)(m)Unlawful Housing PracticesFor any real estate broker or agent, or the employee orrepresentative of any such broker or agent, to solicit anyreal property for sale or rental, or the listing of any realproperty for sale or rental, at any time after such broker,agent, employee or representative shall have notice thatany owner or other person have the right to sell, rent, leaseor approve the sale, rental or lease of such real propertydoes not desire to sell or rent such real property or doesnot desire to be solicited, either by such broker or agent, orby any and all brokers or agents.
The FPO – § 9-1110Remedies Cease and desist order Injunctive or equitable relief Compensatory damages Punitive damages, 2,000 per violation Attorneys’ fees Costs and Expenses
Discrimination inAdvertisingBoth the FPO and the FHA provide a separate cause of actionfor discriminatory advertising practices. Blanket ban on ads that indicate any preference (or aversion) toa certain type of buyer or tenant, based on their membership in aprotected class. Includes both written and oral advertisements. Also includes written and oral statements made on (or inconnection with) any applications for housing or credit/loans.
THANK YOU!Rue Landau, Esq.Executive DirectorPhiladelphia Commission on Human elations215-686-4670
Rent-to-Own Agreements They go by many names Rent-to-own Lease purchase Contract for deed Lease with escrow for purchase Lease with option to purchase (aka lease with option) Legally, they are installment sales contracts Worst parts of being a homeowner together with the worst parts ofbeing a renter
ComparisonLease (landlord-tenant)MortgageRent-to-ownNo down payment(Usually) down paymentDown payment (to purchase theoption to buy)Monthly payments are for rent only Monthly payments are for principal interest ( escrow)Monthly payments are rent ANDsome principal interestLandlord is responsible for property Owner is responsible for propertyupkeepupkeepBuyer is responsible for propertyupkeepLandlord pays taxes insuranceOwner pays taxes insuranceBuyer (usually) pays taxes insuranceNo equityEquityNo equity (until the end)Breach? EvictionBreach? ForeclosureBreach? Ejectment
Surviving spouses who are not co-borrowers or listed on the reverse mortgage documents must repay the reverse mortgage amounts after the borrower dies if they want to remain in the home. Other heirs, like children or care givers, must repay the reverse mortgage amounts after the borrower dies if they want to live in or inherit the home.
Background On Reverse Mortgages Reverse mortgages originated in 1960s Housing and Community Development Act - Popularity & support was limited until passed in 1987 - Established Federal mortgage insurance - Created Home Equity Conversion Mortgages (HECM) - Originally authorized FHA to insure 2,500 loans @michaelkitces
What is a Reverse Mortgage? Home Equity Conversion Mortgages (HECM), aka Reverse Mortgages, are FHA-insured loans that allow borrowers to access . 9 Pennsylvania Illinois North Carolina North Carolina Arizona Illinois Virginia 10 Washington Washington Illinois Maryland Illinois North Carolina Illinois Sources: HUD and Reverse Mortgage
Development (HUD) approved reverse mortgage counselor today. A detailed discussion with a counselor will give you important information to help you decide whether a reverse mortgage is right for you. HUD-approved reverse mortgage counselors have the latest information on reverse mortgages. In order to get the most out of your counseling session .
NY County Lawyers - Wednesday Feb. 12 - 2-hr. Update on Reverse Mortgage - Outline of curriculum By Alfie Schloss NMLS ID 404064 Reverse Mortgage Loan Originator Associated Mortgage Bankers Reverse Mortgage Specialists Tel: 914-275-3361 I. History and Background of Reverse Mortgages a. 1980's Beginning's as predatory loan b.
tors in the reverse mortgage market reap large commissions but face little risk when writing these mortgages. This is because near-ly all reverse mortgages are insured by the Department of Housing and Urban Development, your government. Once the value of the loan reaches the value of the home, lenders
6 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012 mortgages. The baby boom generation (48- to 66-year-olds in 2012) includes more than 43 million households, of which about 32 million are homeowners.3 As of 2009, the median home equity for baby boomer households was 108,000.4 Nearly all reverse mortgages today are insured by the Federal Housing Administration
reverse mortgages taken over by a federal insurance fund has more than quadrupled in four years, from 81.3 million in 2004 to 381.3 million in 2008, according to an analysis of more than 500,000 loans over two decades. 2. Reverse mortgages are now a permanent part of the nation's financial landscape and the
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