More seniors are taking loans against their homes – and it's costing them – Chicago Tribune

As she was getting on in years and her resources dwindled, Virginia Rayford took out a special kind of mortgage in 2008 that she hoped would help her stay in her three-bedroom Washington, D.C., rowhouse for the rest of her life.

Rayford, 92, took advantage of a federally insured loan called a reverse mortgage that allows cash-strapped seniors to borrow against the equity in their houses that has built up over decades.

But the risks of the financial arrangement are stark – and today the frail widow finds herself facing foreclosure.

Under the terms of the loan, Rayford can defer paying back her mortgage debt that totals about $416,000 until she dies, sells or moves out. She is, however, responsible for keeping up with other charges – namely, the taxes and insurance on the property.

Borrowers can receive 50 percent to 66 percent of the value of their equity, depending on their age and the interest rate, generally set at about 5 percent. For example, a 73-year-old with a home worth $100,000 and no current mortgage could receive a loan in a lump sum or monthly installments, or a line of credit, of up to $57,900, not including closing costs, according to HUD.

The debt increases each month with interest on the loan, and in many cases fees to the servicer and an insurance payment to HUD, which guarantees to take over the debt from the lender when it grows bigger than the value of the house. The loan comes due when the borrower dies, moves or violates loan requirements. At that point, owners or their heirs who want to keep the home can pay the debt or 95 percent of appraised value of the property – whichever is less. Or they can walk away from the house.

The federal Consumer Finance Protection Bureau has long warned about deceptive advertising and reverse mortgages. In December, the federal agency fined three companies – American Advisors Group, Reverse Mortgage Solutions and Aegean Financial – for alleged false claims, saying they told seniors with reverse mortgages that they would not have to make monthly payments or face foreclosure, omitting the risks of failing to pay property charges.

“These companies tricked consumers into believing they could not lose their homes with a reverse mortgage,” said Richard Cordray, bureau director.

The companies did not admit wrongdoing in settlements that required them to collectively pay $790,000 in fines.

Sarah White, a foreclosure prevention attorney at the nonprofit Connecticut Fair Housing Center in Hartford, Connecticut, said she went from never hearing of problems with reverse mortgages to spending a large portion of her workday helping senior citizens stave off foreclosure.

Among her clients is Dorothy Leong, 81, who is facing foreclosure on the modest two-bedroom home in Stratford, Connecticut, that she’s owned for decades because of a dispute over $491 in unpaid taxes and insurance. “It’s like they want me to fail,” she said. “I don’t want to lose my house.”

Her loan servicer, Financial Freedom, declined to comment on Leong’s case.

These loans give rise to other complications. Widowed spouses can find themselves fighting displacement if they were not named as a co-borrower in the original reverse mortgage documentation; that lapse has left many widows and widowers without a guarantee that they can stay in their homes until they die without immediately repaying the debt.

HUD guidelines now require people to prove within 90 days of a spouse’s death that they have a legal right to live in the homes.

Flynne, of Reverse Mortgage Solutions, said regulations make it hard to help widowed spouses stay at home.

“The last thing we want to do is rough up the elderly,” she said.

That’s little comfort to Gladys Olivier, who has been fighting to stay in her home in the Queens borough of New York since her husband died in 2012. The 65-year-old woman from Haiti said that she was told she would be able to continue to live in the home even though her name wasn’t on the mortgage.

Olivier said she was never notified about her right to apply to stay in the home and missed the 90-day window to state her claim. She obtained help from a nonprofit group, JASA-Legal Services for the Elderly in Queens, which stopped the foreclosure on her home a day before it was scheduled in January 2017. Her attorneys say the lender, now called Finance of America Reverse, will not even tell her how much money is owed. A company official declined to discuss Olivier’s case.

Olivier is consumed by stress and depression. The case is pending. “They can’t put me on the street like that,” she said.

Rayford, who is fighting to keep her Washington home, obtained a reverse mortgage in 2008 to pay off a $41,000 traditional mortgage and refinanced in 2011 to retire that loan and cover other expenses, receiving a one-time lump sum of about $60,000.

Rayford said she knew she was supposed to pay taxes but fell behind in 2013 following family financial troubles. She sought a repayment plan from her loan servicer, which denied the application, saying she couldn’t afford the monthly payments.

Rayford’s last hope is a new program launched last year in Washington to help struggling seniors. The District joined seven states, including Florida and California, that have created programs to help seniors catch up on their property taxes.

Money is allocated through the “Hardest Hit Fund,” created by the Treasury Department to help families in states most affected by the economic and housing downturn.

Rayford is awaiting word on her request to stop the pending foreclosure. She hopes to stay in the home she’s lived in since 1979.

“I would love to stay here until I close my eyes,” she said.

McKim can be reached at The New England Center for Investigative Reporting is based out of Boston University and WGBH public radio. This report was produced in partnership with the McGraw Center for Business Journalism at the City University of New York Graduate School of Journalism. NECIR interns Miranda Suarez and Debora Almeida were contributors.

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