Great-grandmother fights for her home (w/video)
May 12, 2014 at 12:12 a.m.
After taking out a reverse mortgage on the home she has lived in for more than 30 years, Thelma Williams is in danger of losing it to the bank. The 79-year-old cares for three of her great-grandchildren full time and other children part time.
KEY FINDINGS in 2012 Report to Congress
• The home is the largest asset owned by most Americans.
• In 2009, half of homeowners 62 and older had at least 55 percent of their net worth tied up in home equity.
• Reverse mortgages enable older homeowners to use their home equity to enjoy a more comfortable retirement without selling the home.
• Only 2 to 3 percent of eligible homeowners have a reverse mortgage.
• Only about 70,000 new reverse mortgages are originated each year, but they have potential to become more prominent in the financial landscape in future decades.
Reverse mortgage borrowers are using the loans in different ways than in the past, which increases their risks.
• Reverse mortgage borrowers are taking out loans at younger ages than in the past. In 2011, nearly half of borrowers were under age 70.
• Taking out a reverse mortgage early in retirement or even before reaching retirement increases risks to consumers. By tapping their home equity early, these borrowers may find themselves without the financial resources to finance a future move because of health or other reasons.
• Fixed-rate, lump-sum loans now account for about 70 percent of the market. Borrowers who save or invest the proceeds may be earning less on the savings than they are paying in interest on the loan, or they may be exposing their savings to risky investment choices. They also face increased risks of being targeted for fraud or other scams.
Product features, market dynamics and industry practices also create risks for consumers.
• Spouses of reverse mortgage borrowers who are not themselves named as co-borrowers are often unaware that they are at risk of losing their homes.
• If the borrowing spouse dies or needs to move, the non-borrowing spouse must sell the home or otherwise pay off the reverse mortgage at that time.
• Other family members (children, grandchildren, etc.) who live with reverse mortgage borrowers are also at risk of needing to find other living arrangements when the borrower dies or needs to move.
Source: 2012 Report to Congress issued by the Consumer Financial Protection Bureau
2013 Changes to Reverse Mortgages
On Sept. 3, 2013, the U.S. Department of Housing and Urban Development announced major changes to the Reverse Mortgage, also known as the Home Equity Conversion Mortgage:
• Restricting the amount of funds that can be disbursed at closing or during the initial 12 months after closing. The maximum amount that the borrower can draw in the first year is 60 percent of the loan amount, with a few exceptions.
• Adopting a single disbursement lump sum option allows borrowers to take less than the entire amount available to them. Historically, they were required to take the entire amount. Borrowers can now take a single payment of 60 percent or less of the loan amount.
• Instituting a new upfront mortgage insurance premium structure that charges an upfront MIP of .5 percent of the appraised value of the home for borrowers who take less than 60 percent of the available funds in the first year. For borrowers who take more than 60 percent, the upfront MIP will be 2.5 percent.
• Eliminating Home Equity Conversion Mortgage Standard and Saver
• Changing the principal limit factor tables that determine how much money you are eligible for
• Requiring every prospective borrower to undergo a financial assessment to help reduce future defaults. HUD is finalizing guidelines that lenders must follow when conducting a financial assessment of prospective borrowers. Lenders will analyze all income sources including pensions, Social Security, IRAs and 401(k) plans, as well as credit history.
• Establishing set aside accounts to pay mandatory property charges such as property taxes and homeowners insurance for borrowers who pose a future risk of defaulting on their reverse mortgages.
Thelma Williams, 79, could lose the home she has lived in since 1982.
In December, Champion Mortgage, a subsidiary of Nationstar Mortgage, filed a reverse mortgage foreclosure application despite Williams' attempts to pay delinquent property tax and insurance payments.
Six months later, she still does not know whether she can keep her home.
The white brick house, which sits on a county road in Edna, is also home to three great-grandchildren in Williams' care. Two other great-grandchildren live with her on weekends. The children's ages range from 5 to 11.
"They love to play outside," Williams said, surveying her yard. "They ride their bikes, jump rope, kick the football and play basketball."
The children call Williams "Big Mama." On school days, she wakes them at 5 a.m. so they have time to dress, eat and walk to the end of the driveway before the school bus picks them up at 6:30 a.m.
Williams shuttles the two oldest boys to and from basketball and football practices and games. She picks up her great-granddaughter from basketball and cheerleader practices. Every two weeks, she drives them to Victoria for appointments.
Williams has lived on fixed disability income since 1994. A fall following a 1991 Union Carbide explosion damaged her knee and exacerbated her back problems. Union Carbide moved Williams, a lab analyst, to data entry and continued her employment for two years before pushing her into retirement, she said.
Inheriting the children without financial support stressed Williams' already fragile budget. Her car was repossessed, and she fell behind on more payments.
"I was drowning in bills and got behind on my house payments," Williams said.
She saw a television commercial about reverse mortgages, so she called the bank to learn more.
Bank of America in Houston offered the reverse mortgage as a way to bring Williams' two past-due USDA mortgage payments current and eliminate future mortgage payments. She also expected proceeds from the reverse mortgage to pay off the rest of her outstanding bills, she said.
The good and bad of reverse mortgages
Texas reverse mortgages are a type of home equity loan that allows senior homeowners, age 62 or older, to borrow against the equity in their homes without having to repay any of the mortgage debt during their lifetimes, said Scott Norman with Urban Financial of America in Austin.
The homeowner must continue to live in the home, properly maintain the house, keep the property tax and insurance payments current and abide by the terms of the reverse mortgage loan agreements, he said.
As the baby boomer population continues to age, more than 3.5 million seniors are expected to live in Texas by 2020, he said.
"Simply looking at the state's aging demographics shows that we must act now to help provide liquidity and safety to the burgeoning senior housing market," Norman said.
Last year, the Texas legislature voted 170-1 to strengthen and expand reverse mortgages after a thorough review, he said.
The reverse mortgage is the only financial service product that requires third-party counseling. A 12-day cooling-off period is required between the time a borrower opts for a reverse mortgage and the time it takes effect, he said.
"Two buffers slow the process," he said. "There are consumer protections on the state side and the federal side."
In 2008, Williams signed her reverse mortgage before the 2012 Consumer Financial Protection Bureau report identified numerous concerns with the program.
"Two of the biggest banking institutions, Bank of America and Wells Fargo, got out of the reverse mortgage business for good reason," said Zach Smith with City Mortgage Group in Victoria. "The risk is high, and they don't want to deal with them."
Some mortgage companies do not offer reverse mortgages anymore because the rates are too high, Smith said.
The nature of reverse mortgages - rising balance and falling equity - is difficult for consumers to grasp. High-quality housing counseling is at risk because of funding constraints. As a result, some counselors omit required information or speed through the material, according to the report.
The impartiality of the counselors is undermined in some agencies because they are paid with proceeds from the loan, according to the report. So the agency only receives payment when the reverse mortgage closes.
Furthermore, counseling might be insufficient to counter the effects of misleading advertising, aggressive sales tactics or questionable business practices, according to the report.
The borrowers are also at greater risk of becoming delinquent on taxes and insurance and losing their homes to foreclosures.
In February 2012, more than 9 percent of borrowers were at risk of foreclosure because of nonpayment of taxes and insurance, according to the report.
Reverse mortgage loans are also used to refinance traditional mortgages, which might prolong an unsustainable financial situation.
The 2012 report found a potential need for stronger regulation, supervision of reverse mortgage companies and enforcement of existing laws - some of which the 2013 U.S. Department of Housing and Urban Development changes have addressed.
Searching for solutions
Williams signed the reverse mortgage paperwork provided by Bank of America and received a lump sum payment that was $10,000 less than the amount she expected, she said. The shortage covered closing costs and prevented Williams from settling all of her debts.
Williams' inability to pay insurance and tax payments, a requirement of the reverse mortgage, began immediately.
The reverse mortgage was an ineffective solution to her financial problems, she said.
In 2012, the bank sold Williams' reverse mortgage to Nationstar Mortgage. The mortgage company filed its reverse mortgage foreclosure application in December.
The Better Business Bureau gave Nationstar Mortgage an "F," its lowest rating.
In March, Christina Trejo, attorney with Texas Rio Grande Legal Aid, filed a lawsuit on Williams' behalf to stop the reverse mortgage foreclosure. The nonprofit organization provides free legal services to those who cannot afford them. The application for foreclosure was dismissed the day after the lawsuit was filed. Nationstar Mortgage filed a counterclaim in April.
Trejo's goal is to establish a payment plan for the accurate amount owed by Williams.
"Lives are like dominoes - when one topples, they all start to topple," Trejo said. "It does nobody any good to leave an elderly woman and five children homeless based on misrepresentation."