On September 25th, the U.S. Government Accountability Office (GAO), often called the “congressional watchdog,” issued a report on reverse mortgages.
Reverse mortgages allow seniors to convert part of their home equity into payments from a lender while still living in their homes. Seniors run the risk of defaulting and losing their homes if they don’t continue to pay taxes and meet other conditions.
The study found
- The vast majority of reverse mortgages are made under the Federal Housing Administration’s (FHA) Home Equity Conversion Mortgage (HECM) program with a growing percentage ending because borrowers defaulted on their loans.
While death of the borrower is the most commonly reported reason why HECMs terminate, the percentage of terminations due to borrower defaults increased from 2% in 2014 to 18% in 2018, mostly due to borrowers not meeting occupancy requirements or failing to pay property taxes or homeowners insurance. Only about 22% of borrowers received an option for a repayment plan to help prevent foreclosures.
- FHA’s monitoring, performance assessment, and reporting for the HECM program have weaknesses.
- FHA has not conducted on-site reviews of HECM servicers since fiscal year 2013 and has not benefited from oversight efforts by the Consumer Financial Protection Bureau (CFPB). CFPB conducts examinations of reverse mortgage servicers but does not provide the results to FHA because the agencies do not have an agreement for sharing confidential supervisory information. Without better oversight and information sharing, FHA lacks assurance that servicers are following requirements, including those designed to help protect borrowers.
Following is an overview of the GAO’s recommendations;
- The FHA Commissioner;
- should take steps to improve the quality and accuracy of HECM termination data.
- should establish, periodically review, and report on performance indicators for the HECM program.
- should develop analytic tools, such as dashboards or watch lists, to better monitor outcomes for the HECM portfolio.
- should evaluate FHA’s foreclosure prioritization process for FHA-assigned loans.
- should develop and implement procedures for conducting on-site reviews of HECM servicers.
- should work with CFPB to complete an agreement for sharing the results of CFPB examinations of HECM servicers with FHA.
- should collect and record consumer inquiries and complaints in a manner that facilitates analysis of the type and frequency of the issues raised.
- should periodically analyze available internal and external consumer complaint data about reverse mortgages to help inform management and oversight of the HECM program.
- The CFPB Director should work with FHA to complete an agreement for sharing the results of CFPB examinations of HECM servicers with FHA.
To view the report in its entirety, please click here.