2019 - Seniors were sold a risk-free retirement with reverse mortgages. Now they face foreclosure.
Urban African American neighborhoods are hardest hit as nearly 100,000 loans have failed.
In a stealth aftershock of the Great Recession, nearly 100,000 loans that allowed senior citizens to tap into their home equity have failed, blindsiding elderly borrowers and their families and dragging down property values in their neighborhoods.In many cases, the worst toll has fallen on those ill-equipped to shoulder it: urban African Americans, many of whom worked for most of their lives, then found themselves struggling in retirement.Alarming reports from federal investigators five years ago led the Department of Housing and Urban Development to initiate a series of changes to protect seniors. USA TODAY’s review of government foreclosure data found a generation of families fell through the cracks and continue to suffer from reverse mortgage loans written a decade ago.These elderly homeowners were wooed into borrowing money through the special program by attractive sales pitches or a dire need for cash – or both. When they missed a paperwork deadline or fell behind on taxes or insurance, lenders moved swiftly to foreclose on the home. Those foreclosures wiped out hard-earned generational wealth built in the decades since the Fair Housing Act of 1968 1.Leroy Roebuck, 86, rode the bus his entire career to a nearby curtain manufacturer. When he needed to make home repairs, he turned to reverse mortgages after seeing an ad on television.Ten years ago, he forgot to renew his homeowners insurance, which cost about $2,000 a year. Including fees and penalties, his loan servicer says he now owes more than $20,000.
Roebuck’s first foreclosure notice came in the mail six years ago, and he is still fighting to hold on to the brick walk-up he bought from his parents in 1970, living in it through a special health exemption to foreclosure.
“I told my son, ‘Never. They ain’t gonna take this house,’ ” Roebuck said. “I’ll go to the deep blue sea, they’re not going to take this house.”
Elderly homeowners and their adult children told similar stories in big city neighborhoods across the USA.
Borrowers living near the poverty line in pockets of Chicago, Baltimore, Miami, Detroit, Philadelphia and Jacksonville, Florida, are among the hardest hit, according to a first-of-its-kind analysis of more than 1.3 million loan records. USA TODAY worked in partnership with with Grand Valley State University, with support from the McGraw Center for Business Journalism.
Consumer advocates said the analysis supports what they have complained about for years – that unscrupulous lenders targeted lower-income, black neighborhoods and encouraged elderly homeowners to borrow money while glossing over the risks and requirements.
USA TODAY found that reverse mortgages end in foreclosure six times more often in predominantly black neighborhoods than in neighborhoods that are 80% white.
Even comparing only poorer areas, black neighborhoods fare worse. In ZIP codes where most residents make less than $40,000, the analysis found reverse mortgage foreclosure rates were six times higher in black neighborhoods than in white ones.
The foreclosure disparity resembles a more familiar scenario from the late 2000s, when subprime lenders targeted specific neighborhoods with risky loans doomed to fail, according to the nation’s lead reverse mortgage researcher.
Stephanie Moulton, associate professor of public policy at Ohio State University, said cash-strapped minority borrowers were easy targets for “bad apple” reverse mortgage lenders capitalizing on a market shunned by traditional lenders.
“These areas had demand, and they couldn’t access credit any other way,” she said.
In hundreds of reverse mortgage default cases reviewed by USA TODAY, the homeowners’ original financial needs were basic, the kinds of challenges – house repairs and medical bills – that those with easier access to credit and more disposable income can weather with a second traditional mortgage or home equity loan.
Brokers desperate to replace income lost from the real estate crash with new commissions didn’t wait around for homeowners to come in seeking reverse mortgages, either. They went to where they knew people needed money and sometimes walked door-to-door, targeting houses with decaying roofs or leaky windows. Door hangers advertised a “tax-free” benefit for seniors.
Cherelle Parker, a councilwoman on Philadelphia’s north side, called reverse mortgages a scourge on her community that has put unnecessary financial and emotional strain on seniors. Not only has the area weathered more foreclosures, but the damage cuts deeper.
“Now that asset, that equity, is being drained out of some of the most vulnerable communities in America,” Parker said. “We’ve asked: Why was Philadelphia so targeted to get this loan product? ... America should pay attention.”
The broader public also pays a steep price. Reverse mortgages are insured by a Federal Housing Administration fund, which is in the red more than $13.6 billion because of an increase in claims paid out to reverse mortgage lenders since the recession.
Federal regulators and industry leaders cautioned that numbers alone tell only part of the story, since many foreclosures result from the natural end of reverse mortgages: the homeowner’s death. The average term of a reverse mortgage is about seven years, and if a family member is not willing or able to repay the loan, lenders push the property through foreclosure.
Regulators said actual evictions of seniors are rare. There’s no way to verify that, though, since HUD, the top government regulator of Home Equity Conversion Mortgage 4 loans, does not sign off on evictions – or even count them.
A foreclosure is a failure, no matter the trigger, said Sandy Jolley, a California consumer advocate and whistleblower who helped the government secure an $89 million penalty 5 against reverse mortgage companies two years ago.
“For HUD or anyone else to say that people dying and foreclosure is the natural end to a reverse mortgage is ridiculous,” Jolley said. “No consumer gets into one of these thinking, ‘Eventually my home will go into foreclosure.’ All foreclosures are unnecessary, and this increase indicates a failure of the program to deliver on its promise.”