Progress made by the reverse mortgage industry and the Federal Housing Administration (FHA) in serving borrowers impacted by economic woes stemming from the COVID-19 coronavirus pandemic and inflation has been visible, but there is always more that could be done. This was a perspective shared recently with RMD by Sarah Bolling Mancini, a staff attorney for the National Consumer Law Center (NCLC).
Bolling Mancini, who has served as a reverse mortgage subject matter expert in front of a U.S. House of Representatives subcommittee for a reverse mortgage-focused hearing in 2019, interacts often with representatives of the reverse mortgage industry including lenders, servicers, the trade association and FHA, and describes an industry that is generally receptive to potential improvements when it comes to serving borrowers.
Bolling Mancini recently joined an episode of The RMD Podcast to describe her own interest in reverse mortgages as a subject, and some of the strides the industry has made in the realm of consumer protection.
NCLC and reverse mortgages
The NCLC was initially founded in 1969, and maintains expertise in consumer issues on behalf of low-income people. Government and private attorneys, community organizations and legal services firms work with the organization in its advocacy for the reform of practices that affect the financial lives of general consumers.
The organization has a particular dedication to issues related to homeownership, and proliferating a stable financial life for homeowners. In that respect, the general interaction that the organization has with the reverse mortgage industry makes sense, Bolling Mancini explains.
“In the realm of reverse mortgages, we have consumer law manuals we publish on over 20 different subjects that we cover that are used by lawyers and judges and policymakers around the country,” she explains of the organization’s work. “And we also do trainings and conferences for practicing attorneys that are representing low-income consumers, as well as policy work research writing and testifying in Congress or providing comments on proposed regulations.”
The work that NCLC sometimes does in the realm of reverse mortgages is aimed to ensure the longevity of the product category since it is a financial instrument that can help certain qualifying borrowers, she says.
“It’s a nice opportunity to see the big picture and to work with the advocates that are helping individual homeowners, but really to think about the policies that are at play and how to make reverse mortgages work well for the people that are borrowers,” she says. “[That also works] for the industry as a whole, but really, it’s to preserve this as a good option for people avoiding foreclosures whenever possible.”
The NCLC views reverse mortgages as a tool that can help older homeowners age in place, she says. Certain consumer advocacy groups may not be aware of certain regulatory changes that the FHA-sponsored Home Equity Conversion Mortgage (HECM) program has gone through, which could create challenges for consumers seeking assistance.
“There are some consumer advocates that come at [reverse mortgages] with a lot of skepticism and think that the product can be exploitative and predatory,” she says. “And there are some circumstances where the product gets misused or where there are misrepresentations made to the borrower at the outset. But on the whole, we believe this is a loan that can be really helpful to low income, older adults that — whether their house is their main asset, and if they don’t have a lot of retirement savings, or other assets — this can really enable them to live with dignity and stability in their older years, and to borrow against their home equity without the risk of being displaced.”
If a borrower who has the capacity to qualify for a reverse mortgage does not seek the option out, then other options which may not be a good fit — like refinancing a forward mortgage, getting a Home Equity Line of Credit (HELOC) — may be pursued instead, she says.
“[Those kinds of options] might not be affordable to seniors who are living on a fixed or reduced income,” Bolling Mancini explains. “So, I think reverse mortgages are just a really interesting product.”
The interest in reverse mortgages
For Bolling Mancini herself, her own interest in the reverse mortgage product category when there were issues stemming from existing non- borrowing spouse (NBS) protections, she explains.
“I probably got drawn to reverse mortgages in part because of things that were happening as I was becoming a more experienced lawyer, that was around the time of some of the litigation around the non-borrowing spouse issues, and NCLC was getting involved,” she says. “And I just found it fascinating. I think it’s legally a very interesting area of the law. But mostly, it has such a huge impact on the older adults that need this product to maintain stable housing.”
The industry has made demonstrable progress on NBS issues during that time, she says, and the advocacy from the NCLC and members of the reverse mortgage industry helped make that progress possible.
“[NBS] is an area where virtually all of the problems have been resolved,” she says. “It took litigation and it took a lot of advocacy by NCLC and other allies in the field, and even the industry was pushing for solutions because I don’t believe that the reverse mortgage servicers and lenders wanted to foreclose on these widows and widowers. They were in a bind given the policies that were in place at the time. But that is an area where we’ve seen such huge progress from the creation of the mortgagee optional election (MOE).”
Other issues that need work
There are still other risk areas that could use some work when it comes to reverse mortgage foreclosures, particularly when it comes to property charge defaults, she says.
“I think that HUD has made some changes that we have welcomed, but there’s just a lot that still needs to be done,” Bolling Mancini says. “There are so few options for workable loss mitigation for borrowers that have defaulted on property charges. And we know that there are still so many borrowers that didn’t fully understand the obligation to pay the property charges, either because the counseling wasn’t clear or there may have been misrepresentations. Or, just people who were used to having those charges escrowed, and who didn’t realize [they would have to] pay this directly now.”
Getting to a point where repayment plans can work well for the borrowers who need them is a priority, she says, since those property charges can be destabilizing for someone on a fixed income.
“It’s a large, once-a-year cost, and sometimes the impact of that got kicked down the road a while because there was money in a line of credit, or the advances were being made and the borrowers didn’t know,” she says. “So, we really are still trying to get to a point where repayment plans can work well for people, and other options to preserve that stable homeownership, especially for people [for whom] a repayment plan might not be viable.”
For borrowers impacted by the COVID-19 pandemic, HUD has taken a lot of positive steps to help borrowers including foreclosure and eviction moratoriums and a HECM extension period which can act similarly to a forward mortgage forbearance, she says. However, property charge defaults can also adversely impact pandemic- affected borrowers.
“What we still haven’t seen is a permanent solution for borrowers who defaulted on property charges and were impacted by the pandemic,” she says. “There’s nothing like the [options available to] forward mortgage borrowers, where they can put the arrearage at the end of the loan and pick up going forward. There’s just nothing like that for reverse mortgage borrowers, and we believe that that’s an important piece of the puzzle that had needs to fix.”
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