This last week headlines across the country talked about the eviction of a 101 year-old Detroit woman with a FHA insured HUD Home Equity Conversion Mortgage (HECM) reverse mortgage. In reading the articles and viewing the TV media pieces I find that facts were missing or misconstrued about this situation and reverse mortgages. While Ms. Texana Hollis is returning home, her story leaves a lot of misinformation about reverse mortgages and the benefits they provide to the many borrowers. Let’s take a look at the misconceptions of Ms. Hollis situation.
- Foreclosure/eviction of Ms. Hollis was not due to reverse mortgage but due to lack of payment of taxes, a requirement of the loan (all mortgages as a matter of fact).
- Ms. Hollis son and POA facilitated her in getting the reverse mortgage but didn’t follow through on assisting in making sure the terms of the loan were followed, i.e. he or other family members ignored the requirements to pay property taxes, insurance and maintain the home.
- I’ve seen statements such as “signed the house over to a reverse mortgage.” A reverse mortgage is a mortgage with special terms for seniors 62 and older. The title remains in the borrower’s name – they are not signing the house over to anyone, they are taking out a mortgage with a lien against the property. My blog article “Beware Of Reverse Mortgage Misstatements – The Fact Is Reverse Mortgage Lenders Do NOT Own The Home!” addresses this fact.
- Articles state that the son failed to make payments on the mortgage. Payments are not required on a reverse mortgage. One of the special terms of the reverse mortgage is that the borrower can have access to funds without making monthly mortgage payments. The loan is repaid when the home is no longer the primary residence of the borrower(s). The amount repaid includes the funds received up-front or through monthly payments or draws on the line of credit along with the closing costs, interest and on-going FHA Mortgage Insurance Premiums (MIP).
- Ms. Hollis’ reverse mortgage funds were used for home repairs. It appears from several sources that they were also used by the son for his purchase of a car, donations to a church and other things. If this is the case, this is financial exploitation, NOT the fault of the reverse mortgage and NOT reverse mortgage fraud as some articles indicated.
- Statements such as, “Ms. Hollis only learned about the eviction when the police arrived and carried out her belongings” are misleading. In reality loss mitigation notices were sent by HUD, however it appears that those who were taking responsibility to “assist” Ms. Hollis ignored these notices. I’ve seen statements that her son who is her POA didn’t tell her about the notices because he “didn’t want to worry her.” In some reports he has admitted to ignoring and throwing the notices away. She personally may not have been informed of the eviction because her family intercepted the notices. Don’t blame HUD or the reverse mortgage for actions of her family. If her family didn’t respond to notices it is neglect on their part (i.e. the son/POA) – not HUD or the reverse mortgage.
And now let’s look at the facts of the misconceptions of reverse mortgages which have been shared along with this story and other media coverage.
- The bank does not own the home and the title is not passed to the bank. The title remains in the name of the borrower(s) as long as the home is the primary residence of the borrower. If the borrower does not abide by the terms of the loan (pay property taxes, insurance and maintain the home, the home may go into foreclosure just as with a conventional mortgage.)
- One report stated that a danger of the reverse mortgage is if one spouse passes or goes into senior housing, the other may have to pay back the loan. In reality as long as one borrower remains in the home, the loan does not become due and payable until they, the second spouse, is no longer in the home as their primary residence. If a non-borrowing spouse (one that is not on title with the reverse mortgage) is the one remaining in the home, yes, the loan is due and payable because the borrower (the one on title) is no longer in the home as their primary residence – this is the terms of the loan.
- HUD Home Equity Conversion Mortgages (HECM) are FHA insured. As with a conventional/forward FHA mortgage, borrowers pay an up-front Mortgage Insurance Premium (MIP) as well as an on-going MIP. The benefits to FHA insuring the reverse mortgage include:
- Guaranteeing the funds are available for you.
- Guaranteeing the lender against default or shortfalls
- Keeping the interest rates lower, the interest rates have historically been lower compared to other mortgages.
- Providing a line of credit growth rate (available only with reverse mortgages).
- Ensuring as a reverse mortgage it is a non-recourse (no personal liability) loan. If the loan balance is higher than what the home can be sold for at fair market value, FHA will cover the difference because one has paid the MIP.
- Requiring counseling by a third party HUD trained and approved counselor.
- The HECMs are highly protected. See my Blog article “You Need To know Reverse Mortgage Borrowers Are Highly Protected.”
- “The Government will step in” is another statement I’ve heard. The government doesn’t “step in,” borrowers are paying the FHA Mortgage Insurance to receive the above listed benefits.
- And of course we have the all too common statement that reverse mortgages are expensive. Unfortunately, many do not look at the costs of a conventional mortgage, they just make blanket statements without really doing the comparison as I have done. I’ve written blog articles to address this misstatement:
I think it’s important to note that with a forward FHA mortgage, the up-front Mortgage Insurance Premium is 2.25% vs the 2% on the FHA reverse mortgage. So the forward FHA mortgage is more expensive than a reverse mortgage.
Ms. Hollis story has a happy ending, she is being allowed to return to her home of 50+ years according to HUD spoke’s person Brian Sullivan. Unfortunately the story still led to a lot of misinformation and misunderstanding about reverse mortgages giving them a bad name. It would be nice if the media would provide corrections and facts about these valuable and beneficial options for seniors.
Update September 24, 2011: Facts are still needed! The revere mortgage took a hit in the media with misinformation about this viable option for seniors yet we still don’t know if this was a reverse mortgage or a conventional/2nd mortgage that was on Ms. Hollis’ home. However it appears it was NOT a Reverse Mortgage but a 2nd mortgage on the home… or maybe for non-payment of taxes. Earlier in the week another article reported:
“Action News also found out the background on what really happened and why Texana and her son Warren Hollis were evicted from their home.
“At first, it was thought that Texana’s son had signed a reverse mortgage on the house or that maybe it was a back-taxes issue.
“It turns out that Warren took out a second mortgage on the home in return for $32,000. He claims the money was spent on repairs for the house. He also admits to buying a car with the money and donating some of the money to his church.
“He says the remaining $5,000 was used to pay a number of other expenses. Warren Hollis defaulted on the second mortgage and never told his mother what was going on or that he was receiving eviction notices and warnings. The news broke her heart and she had no time to prepare for being evicted.
“The house no longer belonged to Texana Hollis or her son Warren – who had been living with her. It belonged to HUD. The agency had asked for a court order to have the occupants removed from the home.
“One of the judges from the 36th District Court granted that order several weeks ago and the order was carried out on Monday.
I wonder if we will ever know all the details and what type of mortgage it was or if it was for non-payment of taxes…
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- The Media Needs The Reverse Mortgage Facts
- But Wait, There’s More… Reverse Mortgage Facts The Media Needs To Know
- Beware Of Reverse Mortgage Misstatements – The Fact Is Reverse Mortgage Lenders Do NOT Own The Home!
- Reverse Mortgage Borrowers’ Responsibilities… or Consequences
- You Need To Know Reverse Mortgage Borrowers Are Highly Protected!
- Who Should You Believe About Reverse Mortgages?
- Seventeen Facts About Reverse Mortgages You May Not Know
- The Misconceptions of Reverse Mortgages Abound… What Do You Know?
- Reverse Mortgages Are Expensive… Compared To What?
- Do You Understand The Reverse Mortgage Closing Costs
- Comparing Reverse Mortgage Closing Costs To A Conventional Mortgage – You’ll Be Surprised They Are Not That Different
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