As she was getting on in years and her resources dwindled, Virginia Rayford took out a special kind of mortgage in 2008 that she hoped would help her stay in her three-bedroom Washington, D.C., rowhouse for the rest of her life.
Rayford, 92, took advantage of a federally insured loan called a reverse mortgage that allows cash-strapped seniors to borrow against the equity in their houses that has built up over decades.
But the risks of the financial arrangement are stark – and today the widow finds herself facing foreclosure.
Under the terms of the loan, Rayford can defer paying back her mortgage debt that totals about $416,000 until she dies, sells or moves out. She is, however, responsible for keeping up with other charges – the taxes and insurance on the property.
The loan servicer, Nationstar Mortgage, said Rayford owes $6,004 in unpaid taxes and insurance. If she cannot come up with it, she stands to lose her home.
“I’ve cried a million nights wondering about where I am going to be,” Rayford said.
Across the nation, an increasing number of seniors are facing foreclosure after taking out reverse mortgages, either because they fell behind on property charges or failed to meet other requirements of the complex mortgage loans, according to federal data and interviews with consumer and housing specialists.
“Folks who had expected to age in place and live for the rest of their lives in their home are now having to scramble to find a new place to live,” said Odette Williamson, a staff attorney with the Boston-based National Consumer Law Center, which advocates for consumer justice for low- income people. “People just don’t know where to turn. It’s heartbreaking.”
The federal Department of Housing and Urban Development, which insures most reverse mortgages in the country, said it lacks detailed data on how many homeowners have lost their homes or are facing foreclosure in the program, which was launched in 1989 and covers about 636,000 loans. Nationstar declined to comment for this article.
But a HUD report issued last fall found that nearly 90,000 reverse mortgage loans held by seniors were at least 12 months behind in payment of taxes and insurance and were expected to end in “involuntary termination” in fiscal 2017. That’s more than double the number the year before.
Losses in the senior mortgage program have been a drain on the Federal Housing Administration’s mortgage insurance fund that supports all single-family loan programs, including traditional forward mortgages and reverse mortgages.
HUD spokesman Brian Sullivan said the agency has tightened the requirements to reduce defaults for new loans going forward. It’s a necessary measure as its reverse mortgage portfolio – whose value can go down with defaults or home prices and property values if homes fall into disrepair – was valued last fall at negative $7.7 billion.
Still, he said, reverse mortgages are “a critical resource for seniors who wish to access their accumulated home equity and age in place.”
Before 2015, the only thing homeowners ages 62 and older needed to qualify for a reverse mortgage was equity in their home; lenders weren’t required to determine whether they could afford to maintain their homes or cover tax and insurance payments in the future. Some homeowners used the funds to pay off the original mortgages or ran out of money after covering living expenses over many years. Now HUD requires all borrowers to undergo a financial assessment to qualify, to make sure they will be able to pay their taxes and insurance.
But tens of thousands of troubled loans remain. More than 18 percent of reverse mortgage loans taken out from 2009 to June 2016 are expected to go into default because of unpaid taxes and insurance, according to the HUD report. That compares with less than 3 percent of federally insured loans that are considered seriously delinquent in the traditional mortgage market.
Foreclosures on these mortgages have been on the rise after a 2011 mandate from HUD requiring loan servicers to work out a repayment plan with seniors in tax and insurance default – or to foreclose if there is no way to help them.
Rayford, who is fighting to keep her Washington home, obtained a reverse mortgage in 2008 to pay off a $41,000 traditional mortgage and refinanced in 2011 to retire that loan and cover other expenses, receiving a one-time lump sum of about $60,000.
Rayford said she knew she was supposed to pay taxes but fell behind in 2013 following family financial troubles. She sought a repayment plan from her loan servicer, which denied the application, saying she couldn’t afford the monthly payments.
Rayford is awaiting word on her request to stop the pending foreclosure. She hopes to stay in the home she’s lived in since 1979.
“I would love to stay here until I close my eyes,” she said.