The reverse mortgage product is viewed by the U.S. Department of Housing and Urban Development (HUD), the Federal Housing Administration (FHA) and certain consumer advocates as an important tool to allow seniors to age in place in their own homes, and it is important that the product remains available and is strengthened in appropriate places to continue allowing seniors to tap into their home equity. However, many who may qualify for federal aid after enduring some kind of financial hardship have not availed themselves of assistance.

These were some perspectives shared about the reverse mortgage product category — primarily FHA’s Home Equity Conversion Mortgage (HECM) — during a meeting of the HUD Housing Counseling Federal Advisory Committee held earlier this month. In addition to discussing a series of important issues around housing counseling broadly, a specific segment of the August meeting was specifically devoted to the HECM program’s particulars and the importance of the counseling process to it.

NCLC: reverse mortgages an ‘important tool,’ addressing foreclosure issues

Beginning the reverse mortgage segment of the meeting was Sarah Bolling Mancini, a staff attorney for the National Consumer Law Center (NCLC) and a reverse mortgage subject matter expert who has appeared before Congress to discuss the product and has worked on relevant program issues with the National Reverse Mortgage Lenders Association (NRMLA). Bolling Mancini has also appeared as a guest on The RMD Podcast.

“One really important thing to explain about reverse mortgages is we at the National Consumer Law Center really believe that they provide an extremely important tool for maintaining stable housing for older adults, and helping them to have a good quality of life,” Bolling Mancini said.

Some of the reasons her organization feels that way about reverse mortgages and HECMs specifically include the fact that the program was designed by Congress and empowered HUD to implement it through an insurance program, the goal to allow older Americans to tap into their home equity without risking displacement has existed since the beginning, and they knew that older adults often lived with fewer financial resources on a fixed income, she said.

“Taking out a typical home equity line of credit or second mortgage might not be affordable to many older adults,” she explained. “And so, the idea of this loan that doesn’t require monthly payments is really helpful for keeping especially lower income or more vulnerable, older adults in their stable housing. So we think reverse mortgages play a really important role.”

That being said, NCLC does identify some lingering issues related to reverse mortgage foreclosures taking place before the borrower passes away or chooses to leave the home, she says.

“There are some reverse mortgage borrowers who have ended up in foreclosure unexpectedly,” she said. “In a typical scenario, a reverse mortgage should not go into foreclosure until the borrower dies. And then actually after they die, their heirs have between six and 12 months to satisfy the loan by either selling the home, refinancing to pay off the reverse mortgage or doing a deed-in-lieu of foreclosure.”

Property charge defaults, COVID relief

Typically, a reverse mortgage foreclosure should not result in a displacement. However, there has been an observed rise in reverse mortgage foreclosures which have been largely attributed to property charge defaults, Bolling Mancini explained. These can be in the form of property taxes, homeowner’s insurance, or homeowners association (HOA) fees if applicable.

“Many reverse mortgage borrowers did not understand at the outset that they were going to have to pay those property charges,” she said. “Because often, the marketing of this loan product and the common understanding [centers around not having] to make any payments. Most people are used to their taxes and insurance being escrowed in their forward mortgage payment, so they’re not used paying those charges directly, and they think of that as a housing payment.”

That misunderstanding led to important reverse mortgage product reforms, including the financial assessment requirements and the life-expectancy set aside (LESA). These changes helped, but some reverse mortgage borrowers who had originated their loans prior to 2015 still ran into some lingering issues for a variety of reasons, most recently including the financial hardship brought about by the COVID-19 coronavirus pandemic.

“There is some very important help available,” she said. “HUD did make available something called a HECM extension period for reverse mortgage borrowers impacted by the pandemic, and it’s basically the equivalent of a forbearance. So we all have heard about forbearances, that regular mortgage, borrowers could take a pause on their payments and avoid foreclosure during the pandemic. And in fact, HUD made the same type of relief available to reverse mortgage borrowers.”

This extension period came into play with the passage of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law by President Donald Trump in March 2020. However, uptake on this relief specifically has been very low, Bolling Mancini said.

“Basically as of late in 2021, there were roughly 28,000 reverse mortgage borrowers who were in default on property charges, and only about 3,500 of them had requested the COVID extension period,” she said. […] I think [the reason for this] comes down to a lot of reverse mortgage borrowers who are in default on property charges don’t realize that they’re in default, again, because of sometimes a lack of understanding about property charges.”

NCLC has worked alongside organizations including NRMLA to get the word out about these relief programs, however reverse mortgage servicers have also expressed disappointment at the low uptake of other federal aid programs designed to assist borrowers who may need assistance.