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Cracking Down on Reverse Mortgages

Around 50-60,000 reverse mortgage transactions are done annually. The total amount of money involved is more than $10 billion. At this writing, several hundred thousand reverse mortgages are active.

The industry aggressively pushes the delights of getting a reverse mortgage through television and print advertising, employing such respected aging actors as Tom Selleck, and making it appear that a reverse mortgage is the answer to every senior homeowner’s dreams.

In late September 2019, the U.S. Government Accountability Office (GAO) https://gao.gov/ published two reports identifying weaknesses in the Federal Housing Administration’s (FHA) https://hud.gov/federal_housing_administration heretofore casual oversight of the reverse mortgage industry regarding mortgages made under the Home Equity Conversion Mortgage (HECM) program (see GAO-19-702 titled “FHA Needs to Improve Monitoring and Oversight of Loan Outcomes and Servicing”) https://gao.gov/assets/710/701676.pdf; and GAO-19-721T titled “FHA’s Oversight of Loan Outcomes and Servicing Needs Strengthening”) https://gao.gov/assets/710/701678.pdf.

The GAO’s concerns were prompted by a significant increase in the number of HECM terminations and foreclosures related to borrower defaults, such as failure to meet mortgage conditions, e.g., paying property taxes or homeowner’s insurance. Consumer advocacy groups brought to GAO’s attention their concerns about the foreclosure increases and abuses associated with the management of foreclosure prevention options available to borrowers, and with a focus on the adverse effects of foreclosures on displaced seniors.

GAO made recommendations for strengthening FHA’s reverse mortgage oversight that, if they go into effect, could have a significant impact on generating new legal business on both sides of a reverse mortgage transaction and on legal job creation. Among them are a step-up in on-site examinations of HECM servicers by the U.S. Department of Housing and Urban Development (HUD), https://hud.gov, the Consumer Financial Protection Bureau, https://consumerfinance.gov/, or both, in 2020. In addition, there is likely to be additional scrutiny prompted by consumer complaints.