A reverse mortgage may not protect you and your home.
Illustration by Justin Hernandez
In early August 2016, 73-year-old Mary Taylor opened her mail and found some shocking news: The southwest Houston home sheâ€™d lived in for more than 30 years was in foreclosure.
Five months earlier, she had received a certified letter from a company sheâ€™d never heard of, Reverse Mortgage Solutions, saying she had defaulted on the terms of a reverse mortgage she had taken out from another company in 2013. Reverse Mortgage Solutions had owned Taylorâ€™s loan for only ten days before it filed a foreclosure motion in Harris County District Court.
As part of the motion, an RMS â€œforeclosure specialistâ€� filed a false affidavit claiming that Taylor had defaulted on her property taxes and insurance premiums. The affidavit claimed that the specialist had meticulously combed through Taylorâ€™s records and saw that she hadnâ€™t met her requirements under the terms of the loan.
But Taylor knew the company was wrong. She contacted her son Johnny in Atlanta and explained the situation. Johnny contacted Reverse Mortgage Solutionsâ€™ attorney and tried to resolve the misunderstanding, which proved futile. In May he filed a response on behalf of his mother in Harris County District Court that included information about his motherâ€™s home insurance policy.
Despite the fact that even a cursory scan of tax records on the Harris County Tax Assessorsâ€™ site would have shown Mary Taylor was current on her taxes, RMS charged ahead, scheduling a hearing on the matter for August 1 that neither Johnny nor his mother attended â€” they said theyâ€™d never been notified. Their failure to appear cost Mary Taylor her home: Judge Patricia Kerrigan signed the order approving foreclosure.
After Mary was notified, Johnny quickly filed a motion for a rehearing, as well as documentation showing his mother never defaulted on her taxes. Additionally, a manager in the Property Tax Division of the county tax assessorâ€™s office filed records showing Mary Taylor was current on her property taxes. Five months later, RMS dropped its suit.
â€œHad I not been there, they would have probably owned my momâ€™s home,â€� Johnny told the Houston Press. â€œAnd when I did my research on it, I saw how many cases have gone through Harris County â€” not to mention across the country â€” and how over half of those cases, theyâ€™ve been successful. Itâ€™s organized crime. Itâ€™s robbery in broad daylight.â€�
This sentiment was also expressed in Johnnyâ€™s court-filed response to RMS, which threatened class action against the company for â€œleveraging and stealingâ€� seniorsâ€™ homes.
Currently under investigation by the U.S. Department of Justice for alleged insurance fraud, RMS is a major player in the niche reverse mortgage market, which this year is celebrating 30 years of either saving or screwing seniors, depending on whom you ask.
Reverse Mortgage Solutions has been disciplined by state regulators as well. In 2016 the New York Department of Financial Services launched an investigation, and the Kentucky Department of Financial Institutions fined the company in 2015 for its use of unregistered loan processors in that state. But in Texas, the company has never been the subject of disciplinary issues by the stateâ€™s Department of Savings and Mortgage Lending.
Celebrity TV spots pushing reverse mortgages are everywhere.
Illustration by Nick Anderson
The reverse mortgage market was born out of an innovative pilot program, approved by Congress in 1987, allowing seniors to tap into their homeâ€™s equity to meet rising â€œhealth, housing, and subsistence needs at a time of reduced income.â€�
Through a home equity conversion mortgage â€” otherwise called a reverse mortgage â€” homeowners age 62 or older could obtain a loan that would convert the equity in their home into cash. The loan would not have to be repaid until the borrower died, sold the home or moved out. The idea was that borrowers, who retained the title to their homes, would never be forced out, as long as they met the requirements of the loan. In 1988 President Ronald Reagan signed an act authorizing the Federal Housing Administration to insure the loans, protecting both the lender and the borrower.
Until recently, reverse mortgage originators were not required to check an applicantâ€™s credit or overall financial health â€” as long as the borrower was at least 62, he or she qualified for a loan. But, recognizing that these were still relatively complex loans, the FHA required borrowers to receive counseling from an HUD-approved agency before taking out a loan. Industry watchdogs have long criticized the efficacy of the counseling, saying HUDâ€™s guidelines were vague enough that even a brief, perfunctory phone conversation qualified as counseling.
Borrowers can choose to take their cash up front in a lump sum, or opt for monthly payments or a line of credit. But the sticking point has always been the fine print: Borrowers still have to pay property tax, home insurance and a â€œmortgage insurance premiumâ€� for the FHA coverage. They also have to maintain the home, meaning major problems like a cracked foundation or a leaking roof cannot go unattended.
Unlike traditional mortgages, where monthly payments contribute to the borrowerâ€™s equity, reverse mortgages have a Benjamin Button-like effect: As the Government Accountability Office stated in a 2009 report, â€œReverse mortgages typically are â€˜rising debt, falling equityâ€™ loans, in which the loan balance increases and the home equity decreases over time.â€�
According to the National Reverse Mortgage Lenders Associationâ€™s assessment of HUD data, the reverse mortgage market is relatively small, with only 1.04 million loans originated since 1990. The industry peaked between 2007 and 2009, when more than 100,000 loans were originated for each of those years. But since 2013, the number has dropped to between 40,000 and 60,000 per year.
Founded in Houston in 2007, Reverse Mortgage Solutions entered the industry solely as a servicer, and did not start originating loans until 2011. It soon became one of the industryâ€™s leaders, which made it attractive enough for the Florida-based Walter Investment Management Corporation to purchase for $122 million. At the time, the mortgage banking firm was worth roughly $1.3 billion and seemed optimistic about its future â€” enough, at least, to buy another reverse mortgage originator, Security 1 Lending, the following year for roughly $31 million, as well as acquiring $12 billion in servicing rights from Wells Fargo, which had exited the industry in 2012.
As is practically mandatory in the reverse mortgage universe, companies often change names or meld together to the point that itâ€™s often difficult to tell who youâ€™re actually doing business with, and so it was when Security 1 Lending became the originating arm of Reverse Mortgage Solutions, a move that tied the two brands together. It was this hybrid that would soon catch the attention of the Consumer Financial Protection Bureau, an independent government agency created in 2011 after the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
While generally unable to levy any significant fines or take other disciplinary actions against unscrupulous lenders, the CFPB â€” and other agencies â€” has done a good job of monitoring advertising and marketing practices. While the number of loans originated each year has fluctuated, one aspect of the industry has remained remarkably consistent: its horrible reputation.
As early as 2009, the GAO found â€œexamples of marketing claims that were potentially misleading because they were inaccurate, incomplete, or used questionable sales tactics.â€�
And in December 2016, the bureau found this applied to Reverse Mortgage Solutions and Security 1 Lending.
Itâ€™s oh so easy to overlook the fine print in the rush for ready cash.
Illustration by Nick Anderson
Hello, my friend, Iâ€™m Pat Boone,â€� says the crooner who famously sucked the soul and suggestion out of black recording artistsâ€™ material for a series of covers in the 1950s that made R&B safe for white, conservative and thoroughly unhip households.
Itâ€™s 2011, and heâ€™s appearing in a ten-minute TV ad for Security 1 Lending, explaining the benefits of reverse mortgages to a demographic pumped and primed to take notice when Pat Boone speaks. Looking younger than his 77 years, with a healthy tan and a full, silver mane, Boone seems extremely pleased to talk about this wonderful opportunity for those 62 or older.
The Gospel Music Hall of Famer is no stranger to entertainer endorsements â€” he actually broke new ground in 1978 by becoming the first celebrity to be sued by the Federal Trade Commission, for claims he made in radio, television and print pitches for a blemish-fighting cream called Acne-Statin. Boone would later say he was â€œshocked and dismayedâ€� to learn that the product had not been as thoroughly studied scientifically as the ads claimed.
He seems on more solid ground with Security 1, although the infomercial does seem slightly at odds with his other big endorsement deal, for Swiss America, a gold and silver broker whose ads warn retirees that the only safe investment in the face of â€œimpending economic collapseâ€� is shiny coins purchased through the mail.
Security 1â€™s emphasis on television advertising was a reaction to dwindling response from direct-mail campaigns, the companyâ€™s marketing vice president, Anthony Gaglione, told industry website Reversereview.com in 2012. The commercials were helping the company bounce back from an industrywide slump that started toward the end of 2009.
Today these celebrity TV spots are ubiquitous, and have featured former U.S. senator and Law & OrderÂ alum Fred Thompson, Blue Bloodsâ€™ Tom Selleck and former Fonz Henry Winkler.
But industry watchdogs, as well as the Consumer Financial Protection Bureau, say many ads are misleading. A June 2015 study by the CFPB claimed that many advertisements â€œcontained confusing, incomplete, and inaccurate statements regarding borrower requirements, government insurance, and borrower risks.â€�
This is at odds with a 2012 survey commissioned by the National Reverse Mortgage Lenders Association that found borrowers were savvy and well-informed; 88 percent of the 501 borrowers interviewed rated their overall experience with reverse mortgage loans as positive.
â€œThe reputation of reverse mortgages is too often based upon personal conjecture, anecdotes and unsubstantiated opinion rather than factual evidence and data,â€� NRMLA president Pete Bell said in a statement issued at the time.
To Security 1â€™s credit, at about five minutes into the ad, Boone does disclose that borrowers must pay monthly taxes and insurance. But it would be easy to understand that some viewers might overlook that.
In whole, the commercial pitches the product as a panacea â€” a relatively simple, borrower-friendly contract that provides tons of cash up front and lets you keep your home until you drop dead. The talking-head testimonials from actual borrowers â€” including a cancer â€œsurvivorâ€� who viewers would have no way of knowing had actually died during the commercialâ€™s run â€” act as proof that reverse mortgages work.
Security 1â€™s website took the concept of a reverse mortgage a step further, with a video that discussed its merits against a backdrop of historical milestones aimed at tugging baby boomersâ€™ heartstrings: Set against a generic instrumental light-rock backing track, the video flashes images of the moon landing, Martin Luther King Jr.â€™s â€œI Have a Dreamâ€� speech, the Challenger explosion, 9/11 and John F. Kennedyâ€™s funeral.
Proving that Security 1 Lending did not suffer from a lack of humility, the video ended with these words: â€œWeâ€™re not just about making loans. Weâ€™re about changing lives.â€�
Technically, this may be true â€” it just doesnâ€™t say whether all these lives were changed for the better.
According to the consumer bureauâ€™s 2015 study, â€œsome consumers found it difficult to understand that reverse mortgages are loans with fees and compounding interest like other loans, since most ads either did not include interest rates, or included them in fine print.â€�
And according to a December 2016 disciplinary action against Security 1 and RMS, the companyâ€™s call center sales team used a script that claimed consumers could â€œlive payment-free as long as you live in your home,â€� and Security 1â€™s website â€œadvertised reverse mortgages as a way â€˜to eliminate monthly payments permanently.â€™â€� (The website also included a testimonial from an Arizona man who, as it turns out, had spent time in prison for defrauding investors in an Alaskan gold mine that didnâ€™t actually exist.)
Without admitting any wrongdoing, the companies agreed to pay a $325,000 fine and submit a plan showing how future advertising would comply with consumer bureau guidelines. The companies essentially rendered the second requirement moot by announcing that they would no longer originate loans â€” they would only service them. Additionally, Security 1 Lending changed its name to â€œDitech.â€� (Consumer Financial Protection Bureau officials declined to comment for this story.)
Thus, days after the consent order was inked, Reverse Mortgage Solutions, as servicer, continued to foreclose on homes in Harris County and across the country, claiming borrowers had defaulted on loans.
The bureauâ€™s action, along with the volume of complaints, prompted the Better Business Bureau of Greater Houston to revoke RMSâ€™s accreditation. Borrowers and their heirs had lodged 167 complaints since 2011 with the BBB, largely alleging that customer service reps were alternately oblivious and hostile. In many cases, the complaints came from heirs who suddenly found themselves with a home on their hands and were trying, unsuccessfully, to deal with RMS representatives who demanded payoffs within days of a loved oneâ€™s death.
Federal guidelines requiring companies to meet deadlines can act as an incentive for lenders to foreclose as quickly as possible.
Illustration by Nick Anderson
In 2013 Walter Investment fired its interim chief financial operating officer, who mustâ€™ve been pretty upset, because he went to the U.S. Department of Justice with a doozy of a story: He said Reverse Mortgage Solutions and other lenders under the Walter umbrella had for years submitted false insurance claims to HUD.
Matthew McDonald, the fired interim CFO, told government officials that Walterâ€™s subsidiaries, like Reverse Mortgage Solutions, had overstated many claims, meaning HUD had vastly overpaid lenders.
The Federal Housing Authority insures nearly all reverse mortgages, meaning that HUD will make up the difference to lenders who have to sell a foreclosed home for less than the amount remaining on the loan. Servicers can also submit claims for accrued interest on the loans. In order to obtain the maximum interest payout, servicers are required to meet certain deadlines throughout the foreclosure process. Under a practice called â€œself-curtailment,â€� servicers must disclose to HUD if they missed any deadlines.
In its 2013 complaint against Walter Investment and its subsidiaries, the DOJ accused Reverse Mortgage Solutions of ignoring the self-curtailment requirement and backdating its claims for interest, meaning HUD paid out millions more than RMS was owed.
Filed in a Florida federal court, the DOJâ€™s complaint alleged that â€œas a result of this nationwide scheme,â€� Walter Investment and its subsidiaries â€œreaped profits far beyond those it would have achieved from legitimate practices of their businesses.â€�
The complaint also alleged that Reverse Mortgage Solutions took things a step further by violating the Real Estate Settlement Procedures Act, which barred the company from â€œbeing both the servicer and the seller.â€� According to the complaint, RMS circumvented the law by using straw companies to act as the seller. In one case, according to the complaint, RMS claimed that a Flatonia, Texas-based company called Unified Real Estate Management liquidated RMSâ€™s foreclosed properties. That company collected commissions at closing, keeping a small fee, while kicking the rest back to RMS. (Unified Real Estate Management appears to have gone out of business after roughly three years, when its owner died in 2016 at age 82.)
The DOJâ€™s complaint also cited a Walter Investment Securities and Exchange Commission filing that acknowledged â€œservicing errorsâ€� by RMS, and its â€œfailureâ€� to report a $53 million self-curtailment liability both to HUD and to investors.
The SEC filing claimed that Walter Investment didnâ€™t discover RMSâ€™s sketchy insurance claims until after it bought the company. So Walter Investment admitted no wrongdoing when it agreed to pay $29 million to settle the case in September 2015.
However, Walter Investment and its subsidiaries arenâ€™t yet out of the woods: In its 2016 annual report, Walter disclosed that RMS was under investigation by HUDâ€™s Office of Inspector General and the DOJ. The Office of Inspector General subpoenaed RMS in June 2016 and January 2017 for loan documents dating back to 2005.
Sandy Jolley, a California-based industry watchdog, was instrumental in another major reverse mortgage settlement. In May 2017, Austin-based servicer Financial Freedom agreed to pay HUD $89 million to settle allegations of filing false claims.
Jolley, who runs the subtly titled website Elderfinancialterrorism.com, was drawn into the reverse mortgage world when her parents â€” a father dying of cancer, a mother suffering from Alzheimerâ€™s â€” saw actors James Garner and Robert Wagner shilling for the product in TV ads, and decided to take a look. In May 2005, they secured an $81,000 reverse mortgage loan from Financial Freedom. Her father died a month later.
Jolley and her family sued Financial Freedom, alleging wrongful foreclosure. According to Jolley, the company retaliated by claiming Jolleyâ€™s mother didnâ€™t even live in the house anymore.
â€œIt was pure harassment to make me and my sisters feel helpless and that they could do anything they wanted and we couldnâ€™t stop them,â€� Jolley told the PressÂ in an email. â€œFinancial Freedom had certified letters and multiple phone calls from me that my mom was living in the house as her primary residence. They sent a representative out to the house who verified she lived thereâ€¦Their attorneys knew my mom was living in the property, and the annual occupancy certificates were in the case exhibits.â€�
She added, â€œThis is a common practice of Financial Freedom â€” and didnâ€™t happen just to us.â€�
Ultimately, Financial Freedom prevailed, and the house was foreclosed on and sold at auction.
â€œNinety-nine percent of consumers who get a reverse mortgage have absolutely no idea if itâ€™s going to be beneficial to them or fatally financially harmful to them,â€� Jolley told the Press.
The option to take a reverse mortgage loan in one lump sum payment is especially problematic, said Jolley, who calls it â€œa recipe forâ€¦disaster.â€�
She explained: â€œYou get all this money, you have no financial plan whatsoever, and you spend the money on exactly what you were told in the commercials to do â€” on paying off your debts, going on a trip, paying for your grandchildrenâ€™s college education, whatever it is â€” and the moneyâ€™s gone.â€�
However, Jolley isnâ€™t against the idea of reverse mortgages â€” she just doesnâ€™t think they have consumersâ€™ best interest in mind.
â€œI think that the reverse mortgage program needs to be available for seniors, but only if it works for seniors,â€� she said. â€œIt doesnâ€™t have to work for the servicer, and it doesnâ€™t have to work for the government and the FHA insurance fund, because if it works for the senior, itâ€™ll work for everybody.â€�
A good start might be tweaking the celebrity endorsement commercials emphasizing claims that borrowers can remain in their homes in perpetuity while glossing over the required payments.
â€œAll those things they say in those reverse mortgage commercials are features of a reverse mortgage â€” thatâ€™s not what a reverse mortgage is,â€� Jolley said. â€œâ€˜You can stay in your home for lifeâ€™ â€” well, is that feature applied to the person applying for this loan? You know, â€˜you can have additional incomeâ€™ â€” well, maybe you can and maybe you canâ€™t; does that apply to your situation? So they need to get out of touting the features of it and start talking about what it is, and what the consumer needs to know and do to get one safely.â€�
Ostensibly, thatâ€™s one of the roles of the HUD-mandated consumer counseling, but Jolley said thereâ€™s rarely any actual counseling.
Certainly, borrowers whoâ€™ve sought foreclosure relief from Lone Star Legal Aid donâ€™t seem to have benefited from counseling, or from adequate explanations from the lender.
â€œThey donâ€™t talk to you about the fine print,â€� attorney Amir Befroui of the Houston office of Lone Star Legal Aid told the Press.
He and colleague Elizabeth Lockett have represented a steady stream of reverse mortgage borrowers. They say the federal guidelines requiring companies to meet deadlines can act as an incentive for lenders to foreclose as quickly as possible.
When asked about situations in which reverse mortgages are a good idea for clients, Lockettâ€™s go-to example is pretty extreme.
â€œI once had a client who was estranged from his family, dying of AIDS, had no partner, had no kids and wanted to travel the world,â€� she said. â€œIn his case, he was not going to be living for an additional five years, he need not worry about paying taxes and insurance in the future, and he had no intention about leaving his house to anybody.â€�
A borrowerâ€™s health problems, no matter how severe, are sometimes no cause for a lenderâ€™s concern. Harris County District Clerk records show that one Legal Aid client, an 83-year-old woman bedridden since 1996, who obtained a reverse mortgage loan from MetLife in 2009, faced foreclosure in 2016, after the loan was bought by Champion Mortgage. (Side note: Championâ€™s parent company, Nationstar, has announced that this month it is officially changing its name to â€œMr. Cooper,â€� a christening that was chosen after Nationstar conducted an exhaustive analysis of â€œthousandsâ€� of names.
According to court records, Champion wanted to foreclose on Jacklyn Reed for not paying $948 in taxes and insurance. The problems arose from a dispute over Reedâ€™s flood insurance coverage: Champion wanted her coverage policy to be $59,000 more than MetLife had required, so Champion paid the amount and tacked it onto Reedâ€™s balance.
After Champion filed a motion for final judgment in May 2016, a court hearing was set, but Reed was too ill to attend. According to a doctorâ€™s note, she couldnâ€™t attend in person because of â€œjoint deformities from rheumatoid arthritis and multiple spinal fractures.â€�
In July 2016, Champion dropped its suit. Reed died two months later.
Even if the homeowner does everything right, he or she can still be greeted with a foreclosure sign.
Illustration by Nick Anderson
In July Reverse Mortgage, the accurately, if blandly, titled magazine published by the National Reverse Mortgage Lenders Association, dedicated its entire issue to the 30th anniversary of the reverse mortgage. â€œHave We Found Our Path?â€� is the presumably rhetorical question teased on the cover, along with a circle of lawmakers applauding Ronald Reagan.
â€œWe wanted to make sure that, as an industry, we are not stuck in a cocoon,â€� Marty Bell, the magazineâ€™s editor, wrote in a letter from the editor. â€œWe seem to be at a turning point where many of us are no longer to do business as usual.â€�
The associationâ€™s president, Peter Bell, wrote about his own bit of soul-searching as well, stating, â€œSometimes, I fear the reverse mortgage industry, or at least some of its participants, are our own worst enemy.â€� He added, â€œWe all pay the price for the misdeeds of the few.â€�
But he also criticizes â€œregulators and elected officialsâ€� who harbor what Peter Bell apparently considers a bizarre proclivity to â€œfeel they must take action when inappropriate activity occurs.â€� Then the media blows it all out of proportion, according to Bell.
Of course, those â€œfewâ€� have tens of thousands of reverse mortgage accounts and can control the fates of all the associated borrowers. Apparently, to Peter Bell, this is statistically insignificant.
And while Marty Bell proclaimed that â€œtolerance of staying stuck in a cocoon has expired,â€� a spokesperson for Walter Investment seemed more content to stay inside a cocoon instead of responding to the Pressâ€™s questions. Since the issue isnâ€™t addressed in Reverse Mortgage’sÂ industry retrospective, it would have been an opportune time for someone from Walter Investment to explain if there were any repercussions for â€œforeclosure specialistsâ€� who filed false affidavits, as in Mary Taylorâ€™s case.
As her son Johnny put it, â€œIf my mom went through that, thereâ€™s probably another hundred seniors going through that, gone through it or will go through it.â€�
Of course, thereâ€™s nothing keeping RMS from going after Mary Taylorâ€™s home in the future. All it would need is another false affidavit, which is easy enough to get, and a willingness to put an elderly widow out on the street, which they already seem to have.
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