The Washington Post on Friday published an article highlighting some of the issues that Home Equity Conversion Mortgage borrowers have had with tax-and-insurance defaults. The piece then appeared in the Sunday print edition under the headline “Hidden costs of reverse mortgages can lead to foreclosure.”
Shelley Giordano, chair of the Funding Longevity Task Force in Washington, D.C., wrote this “rebuttal” to the piece and its print headline.
It is always distressing to read of seniors who are unable to meet homeowner obligations with taxes and insurance and whose mortgages are then in default. The reporter did an excellent job of portraying how heart-wrenching this outcome is. For the sake of completeness, however, it would have been a more balanced piece if the reporter had noted that any mortgage, not just a reverse mortgage, requires that the homeowner pay property taxes and homeowner’s insurance.
In one example, a fairer treatment of this issue would have asked what the homeowner would have done had she retained the original mortgage and not been able to make tax and insurance payments with that mortgage. The ability to do so would surely have been even more problematic because of the required monthly principal and interest payments for traditional financing. The homeowner would be at risk for default in that situation — both for tax and insurance deficiencies, as well as possible failure to make mortgage payments.
This is not to say that the reverse mortgage was not subject to abuse, especially during the housing bubble, both by a few borrowers and some lenders. It is a sad truth that there are some situations in which a senior may not be best served by home ownership.
The reporter correctly notes that the Department of Housing and Urban Development acted decisively to reduce tax and insurance defaults by requiring financial proof of willingness and capacity to meet homeowner obligations. Those who cannot meet both tests may be prevented from encumbering their homes with a Home Equity Conversion Mortgage, which is an important safeguard. HUD went further and now controls how quickly and how much a homeowner can extract from his or her HECM reverse mortgage in early years. The reporter correctly notes that HUD has acted to protect non-borrowing spouses as well.
It is not unusual for financial products to evolve, and HUD’s action to improve consumer safety is laudable, as the reporter discusses. What is incomprehensible, however, is the claim that “hidden costs” riddle the Fedarl Housing Administration’s HECM program. There are none.
Again, the Washington Post would have served its readership better if it had reviewed origination and closing documents for the HECM. All fees are listed. Projections are provided that predict the costs not only at the outset, but over time. The future value of a growing line of credit is provided, as well — a benefit the piece did not address.
And in contrast to a traditional mortgage, every borrower must be counseled by an independent, FHA-approved agency before originating a HECM. We invite the Post to attend one of these sessions to see how clearly the counselors discuss fees and alternatives to reverse mortgages. It would find that the counselors stress that tax and insurance obligations must be met by the homeowner, just like with any other mortgage. The truly unfortunate examples cited do not need the extra headline that hidden costs must be the cause.
