GreenPath CEO Kristen Holt: Tips for Avoiding Reverse Mortgage Foreclosure
- July 16, 2019
- By: Greenpath Financial Wellness
Recent news coverage (“Detroit leads nation in reverse mortgage foreclosure rate”) has brought the escalating reverse mortgage foreclosure rate into the spotlight. A Free Press and USA Today analysis revealed that urban communities have been most impacted by the reverse mortgage foreclosure trend with Detroit leading the way. Other urban epicenters including Chicago, Baltimore, Miami and Philadelphia also make the top ten.
A HUD-insured reverse mortgage, also known as a Home Equity Conversion Mortgage (HECM), allows homeowners age 62 or older to borrow against the equity in their home. This type of mortgage can help with expenses and home repairs when the borrower is living on a fixed income, helping homeowners to age in place.
Instead of making mortgage payments, the reverse mortgage borrower can access equity that they will not pay back until they leave the home. The borrower is still responsible for paying property taxes and home insurances, and the loan becomes due and payable in full when the last borrower moves from the home, sells the home, or passes away.
A HECM can be a sensible option for seniors with sufficient income to cover all of their expenses, including property taxes and insurance, who want to live comfortably in their home as they age in place. Unfortunately, some reverse mortgage borrowers lack a solid spending plan and find themselves unable to keep up with their loan obligations and face foreclosure.
As a HUD-approved housing counseling agency, GreenPath Financial Wellness often works with HECM clients facing this very predicament. In many instances, by the time these individuals have reached out for help, they find that few options exist to right the ship.
Aging in place is the desire of most seniors and, GreenPath’s mission is to empower people to lead financially healthy lives so they can do just that. To that end, we offer the following tips to reverse mortgage borrowers and their loved ones.
Consider all options before securing a reverse mortgage.
While a reverse mortgage could be right for you, there may be other options. GreenPath experts can help clients think through alternatives like developing a solid budget or pursuing a debt management plan.
Understand what constitutes loan default.
GreenPath experts can help you understand what factors can put your reverse mortgage in jeopardy so you can work to avoid them.
Plan for property taxes and insurance payments.
Many borrowers are used to having their insurance and property taxes paid for in escrow as part of their mortgage payment. When they switch to a reverse mortgage, they are no longer making a mortgage payment, but are still responsible for paying property taxes and insurances. Because these large bills come due only a couple of times a year, it is important to set calendar reminders and plan ahead.
Family members, educate yourself on the terms of the loan.
Be mindful of your loved one’s obligations and their plan to meet them. Set your own reminders for dates your loved one’s property tax and insurance payments come due. Understand that when the last borrower leaves the home, the reverse mortgage becomes due in full. The home may be sold to satisfy the mortgage, but if heirs wish to keep the home, they will need to pay off the reverse mortgage, typically with a forward mortgage of their own. Time is of the essence so it is crucial for heirs to keep in touch with the reverse mortgage servicer to avoid foreclosure.
Spouses, understand the deferral period.
A non-borrowing spouse needs to understand the deferral period following the death of the borrowing spouse. The surviving spouse must meet all of the borrower obligations (paying property taxes and insurances, maintaining the property and residing in the home), but without access to any remaining loan funds. Keeping up with these expenses can be challenging with the loss of a spouse’s income and no access to any remaining loan funds.
Supplement government-mandated pre-loan counseling.
The government does mandate that borrowers complete a one-time pre-loan counseling session. This counseling is important but provides a lot of complex information in a short amount of time. It can be information overload. We suggest seniors supplement this session with additional financial counseling shortly after the loan closes and periodically thereafter. GreenPath maintains a full-service contact center with a national footprint. We’re poised to assist reverse mortgage borrowers to be successful with their loans.
This final point is where GreenPath sees real opportunity. The sheer amount of information shared during the pre-loan counseling session, which is required by all borrowers to complete before originating a reverse mortgage, can be daunting. As a result, borrowers may not completely understand the loan ramifications and changes that will occur to their budget.
GreenPath has found that when additional financial counseling is built into the post-close process, outcomes can look very different. For example, we have observed success with Making Home Affordable, a federal housing-related program, which repositions borrowers by modifying their mortgage. Servicers were mandated to offer financial coaching immediately after the loan is modified to help the borrower create a better path forward. During these sessions, GreenPath experts look at things such as the borrower’s budget and credit situation. Numerous clients have provided positive feedback on these counseling sessions and have gone on to be successful in meeting their loan obligations and adjusting their spending.
A similar financial counseling session is not mandated following the signing of a reverse mortgage. We believe this could be a crucial step in the right direction for curbing the rising reverse mortgage foreclosure trend. Until such counseling is mandated, GreenPath encourages those with a reverse mortgage and their family members to reach out for a no-cost counseling session to ensure they can age in place exactly where they wish.
We Can Help You With Reverse Mortgage Counseling
If you or a family member is considering a reverse mortgage, call us to learn the pros and cons and get all of your questions answered. We will equip you with the knowledge to determine if a reverse mortgage is right for you. Our professional, caring coaches will explain your options. They’ll work with you to develop a personal action plan.
Kristen Holt is president and CEO of GreenPath Financial Wellness based in Farmington Hills, Mich. GreenPath is a national nonprofit that supports lifelong financial wellness for everyone.