ADVOCATES QUESTION IF HUD SHOULD BE DOING MORE TO PROTECT SENIORS FROM NEEDLESS FORECLOSURES
“This new data adds to our concerns that HUD is asleep at the wheel when it comes to protecting vulnerable seniors from foreclosures that shouldn’t happen,” explains Kevin Stein, deputy director at the California Reinvestment Coalition. “Seniors are losing their homes at an alarming rate, and HUD appears to be doing little more than rubber-stamping foreclosure requests by servicers who should be making every reasonable effort to preserve senior homeownership whenever possible.”
“Each reverse mortgage I have reviewed contains a clause that requires the lender/servicer to “reinstate” the mortgage as soon as the condition of default is cured, either before or after the foreclosure lawsuit is filed. It is very difficult to understand why lenders and servicers continue to ignore this requirement and create arbitrary servicing hoops for seniors to jump through so, ostensibly, the servicer can foreclose, explains Lynn Drysdale, Division Chief, Consumer Advocacy and Litigation Unit at Jacksonville Area Legal Aid which filed the FOIA request with CRC. “Seniors deserve protection from servicer mistakes, and HUD needs to dramatically step up its monitoring and enforcement of this industry before it’s too late.”
Alys Cohen, staff attorney at the National Consumer Law Center adds: “The steep rise in reverse mortgage foreclosures reflected in this data is extremely concerning. From our experience working with advocates around the country, we know that seniors struggling to pay property taxes and homeowners insurance represent a significant chunk of reverse mortgage foreclosures. HUD’s initial response suggests that the data on reasons for reverse mortgage foreclosure are not being collected or analyzed adequately. Older borrowers need the opportunity catch up on these property charges through reasonable loss mitigation options, which will only happen if HUD changes its policies to require that lenders make those options available.”
“The dramatic increase in reverse mortgage foreclosures is alarming, both in New York state and nationwide. Reverse mortgage foreclosures are especially devastating because they put some of our most vulnerable homeowners at risk of homelessness over what is often a relatively small amount of money. We hope this new data analysis serves as a call to action for policymakers, regulators, and lenders to reverse this disturbing trend,” said Christie Peale, Executive Director of the Center for NYC Neighborhoods.
The new data from HUD show that in a mere 9 month time period (April 2016 to December 2016), there were 32,976 foreclosures on federally insured reverse mortgages. In comparison, HUD disclosed in an earlier FOIA response that from April 2009 until April 2016 (a seven year period), there were 41,237 total reverse mortgage foreclosures in the HECM program. When the total number of foreclosures is computed as a monthly average, it shows the dramatic increase, from 491 per month from April 2009 to April 2016, to 3,664 foreclosures per month (3,173 more each month) from April 2016 to December 2016.
Advocates are deeply concerned about the new data, which adds to concerns that preventable foreclosures continue to happen because HUD’s program to help non-borrowing surviving spouses (the Mortgagee Optional Election) and state-sponsored foreclosure prevention programs aren’t well known about by the populations who would benefit from them, are dependent on servicer discretion for a senior to participate and benefit from the program, and are unevenly implemented by servicers and by HUD.
Financial Freedom had a 302% increase in foreclosures: The new FOIA data also revealed a 302% increase in foreclosures last year by Financial Freedom, the reverse mortgage servicer previously owned by OneWest Bank. A 2016 FOIA response indicated that Financial Freedom had been responsible for 39% of all federally insured reverse mortgage foreclosures between April 2009 and April 2016, despite only servicing an estimated 17% of the market.
Joseph Otting, the president’s nominee for the Comptroller of the Currency, was CEO of OneWest Bank from October 2010 until he was fired in 2015 after OneWest was purchased by CIT Group. In May this year, CIT Group agreed to a $89 million settlement with the US Department of Justice over alleged fraud committed against the Federal Housing Administration, and the majority of the fraud was alleged to have occurred during Otting’s tenure. A New York Attorney General investigation into Financial Freedom continues, as does an investigation by the Office of Inspector General at HUD.
In October 2017, CIT Group announced plans to sell Financial Freedom, but refused to disclose who the buyer is. Given Financial Freedom’s track record, advocates are concerned and want to know what improvements a new buyer will implement to prevent more alleged fraud and to ensure there will be no more avoidable foreclosures against vulnerable seniors.
Recommendations to Congress, HUD, and the CFPB
1) Require Servicers to Help At-Risk Seniors: The Ranking Chair of the House Financial Services Committee, Congresswoman Maxine Waters, has introduced legislation, the Preventing Foreclosures on Seniors Act that would require the mandatory assignment of federally insured reverse mortgage loans to HUD if a non-borrowing spouse was living in the home at the time of death of the borrower.
2) Increased Oversight and Enforcement to Protect Seniors: Based on the alarming increase in foreclosures and defaults, advocates believe that HUD and the Consumer Financial Protection Bureau should increase their oversight and enforcement activities to better protect seniors, to hold institutions accountable for noncompliance with applicable rules, and to ensure that no unnecessary foreclosures take place.
Enhanced oversight, scrutiny and enforcement requires that:
2A: Servicers must improve their processes: Advocates have heard from a number of seniors and their families that reverse mortgage servicers are incorrectly determining that a senior is no longer occupying their property, and are moving to foreclose as a result. HUD must do a better job monitoring servicers when they report “non-occupancy” as the reason for foreclosing. In some cases, this may be because the homeowner didn’t respond to a mailing from their servicer, asking them to confirm their continued occupancy. Advocates have also worked with a number of homeowners whose reverse mortgage servicer improperly either forced-placed insurance, or paid property taxes prematurely.
2B: HUD should redouble its efforts to keep seniors in their homes when possible, including ensuring that seniors and their servicers are aware of and utilize programs to help preserve homeownership. Under the Hardest Hit Fund, some states have created programs to help seniors facing foreclosure because of a reverse mortgage. In California, a pilot program to assist seniors with property tax expenses has helped just over 600 seniors as of September 2017. Other such programs exist in Florida, Illinois, Michigan, and Oregon. No seniors in these states should lose their homes where existing programs can help.
2C: In the case of a borrower’s death:
o Servicers and HUD must ensure that any non-borrowing spouses in the home have been made aware of the HUD MOE option and how it may enable them to keep their homes.
o HUD must ensure that heirs are aware of their rights to purchase the home and be given a meaningful opportunity to do so.
3) More transparency and oversight of reverse mortgage company change of ownership, such as the reported sale of Financial Freedom to an unnamed purchaser. All regulatory approvals for the sale of reverse mortgage originators and servicers should be withheld until regulators have considered the experience and comments of reverse mortgage borrowers, Non Borrowing Spouses, and heirs who will be impacted by the sale (as well as nonprofit attorneys and housing counselors who are helping seniors to avoid preventable foreclosures). Regulators should require the companies to complete independent audits that can be reviewed by regulators to determine what issues at the company for sale must be fixed, if any, and whether the purchasing company has the capacity, policies and controls to make those fixes in order to prevent all unnecessary foreclosures against vulnerable seniors.