A Reverse Mortgage Ruined His Life? Nonsense. Not true.
On July 23rd, the New York Post ran a story under the inflammatory headline, “Taking out a reverse mortgage ruined my life.” Honestly, the headline sounded so over the top to me that at first I thought it might be some sort of joke. I mean, how on earth could a HECM reverse mortgage harm someone when it doesn’t even require the homeowner to make monthly payments on it.
I could easily see how a traditional mortgage could become a problem, because if you can’t make the payments on a traditional mortgage for a few months you can end up in foreclosure, but with a HECM reverse mortgage, as long as you pay your property taxes and insurance, you can live in that house until you sell it, or until you and your spouse dies and never make a single payment.
In case you’re not already aware, HECM stands for Home Equity Conversion Mortgage, and it’s a type of mortgage that’s only available to homeowners over age 62 that have equity in their homes. President Bush signed the legislation that created the HECM during the summer of 2008. HECMs are regulated by HUD and insured by the FHA.
A HECM is really just an FHA mortgage that doesn’t require borrowers to make monthly payments unless they want to do so.
With a HECM, you can make interest only payments… you can make principal and interest payments… you can make balloon payments whenever you want to… or you can make no payments whatsoever and if you choose not to make any payments on the loan, then the interest simply accrues to the loan balance and gets repaid once you sell the home or after you and your spouse dies.
So, for example, let’s say you had a HECM with a $100,000 balance and the interest rate was four percent. If you made no payments on that loan, after the first year your loan balance would be $104,000. After the second year, still assuming a four percent interest rate, your balance would be roughly $108,160, Simple, right? You can either let the interest accrue to the balance of the loan or you can pay it whenever you want to pay it.
Upon the death of the homeowner(s), the home is left to the heir(s) who can choose to either refinance the loan and keep the house, or sell it and keep the equity. The only things you have to keep paying when you have a HECM are the property taxes and home insurance.
Now, let’s get back to the loan that supposedly ruined someone’s life…
I put off reading the the story for about a week mostly because I didn’t want to have to deal with idiocy and also because I guess I was hoping that someone else would take on the Post’s story and set things straight. But alas, no one did… and so here I am once again.
The Post’s story is about a 67 year-old man from New York by the name of Frederick Feil, who almost lost his home because he fell $15,375 behind on his property taxes… and who somehow has now decided to blame his HECM reverse mortgage for ruining his life.
(Spoiler alert: He didn’t lose his home, by the way, so I guess the reverse mortgage came through in the end, but that’s not the point here, I realize.)
According to the Post’s story, Frederick received $353,000 from a HECM in December 2011. Except for a few thousand dollars, that money was needed to pay-off the traditional mortgage that he already had on his home. That way, he would be able to live in the home for the rest of his life while never having to make a monthly mortgage payment on the $353,000 mortgage.
No mortgage payment for the rest of your life, or until you sell the home sounds like a pretty great thing to me. I’m not quite old enough to do it, but I sure wish I was.
Again, you with a HECM, you still have to pay your property taxes, insurance and normal maintenance, just like with a traditional mortgage, and that fact is written all over just about every piece of paper that explains HECMs and reverse mortgages. It’s certainly no secret, I’ll tell you that.
According to the Post’s story…
“Frederick told The Post he fell behind on property taxes while in the hospital last year — and unexpectedly found himself in foreclosure last March.”
Okay, so I assume that when he realized that he’d inadvertently fallen behind on his property taxes he simply fired off a check for those taxes that he’d forgotten to pay, right?
No, not exactly. According to the Post…
“Feil claims (his mortgage servicer) gave him the runaround when he called about the default. The amount is not listed in the foreclosure complaint, which made it tough for him to catch up.”
Here’s where I start to get lost. Did Frederick not know anything about his property taxes, beyond knowing that he had forgotten to pay them while in the hospital? He didn’t have any idea how much they were? He didn’t know how to check with the county to find out how much he owed?
And I have to wonder if Mr. Feil got the dates wrong when he spoke to the reporter (and I use that term very loosely) from the Post, because I find it inconceivable that anyone ends up in foreclosure anywhere near that quickly as a result of not paying their property taxes.
After several years of failing to pay… maybe, but missing a property tax payment or two while in the hospital doesn’t put someone in foreclosure.
How long a runaround did the servicer put him through, while he asked them to tell him how much he owed? I mean, are we talking about being left on hold for 40 minutes, or are we talking about calling every day over several months?
Didn’t anyone suggest that he try contacting the county assessor’s office, or whatever local or state agency handles such things in New York? A few years ago, I wanted to check my own property tax information, and although I had never done so before, after one two-minute phone call I was directed to a website. I entered my home address and bang zoom… there was everything I wanted to know about my property taxes and more.
I can’t imagine that New York makes it difficult for people to pay property taxes… they do want the money, after all. And whenever I skip a property tax payment, whether on purpose or accidentally, I can count on my local government to send me more notices than I could ever count until I’ve paid my debt in full.
According to Frederick’s story, however, he fell behind while in the hospital, and then after he realized that he’d forgotten to pay, he became incapable of finding out how much he owed.
His servicer couldn’t figure it out either, and the Post’s reporter added…
“… the amount was not listed in the foreclosure complaint, which made it tough for (Frederick) to catch up.”
Excuse me? The fact that the amount he owed for delinquent property taxes wasn’t listed in the foreclosure complaint is what made it tough for Frederick to pay his delinquent property taxes?
So, I’m to believe that this 67 year-old man, presumably of reasonably sound mind, waited until he received a foreclosure notice to find out how to pay his back property taxes, and when he couldn’t find the amount listed in that foreclosure notice, that’s what made it “tough for him to catch up” on his property taxes?
I’m sorry, but I’m not buying any of that.
Mr. Feil chose to refinance his mortgage into a reverse mortgage so that he would no longer be required to make monthly mortgage payments. If the payment on his $350,000 mortgage was $2000 a month, then by refinancing into the HECM reverse mortgage, he was able to put that $2,000 into his own bank account each month.
Without knowing any other pertinent factors, I’d say that sounds like a darn good reason for him to have done what he did.
He’d have to pay his property taxes EITHER WAY. In fact, even if your home is free and clear you still have to pay property taxes, right? Of course that’s right.
Before he switched over to the HECM reverse mortgage, he had to pay his property taxes, and after he switched into the HECM reverse mortgage, he still had to pay his property taxes. He’s lived in the home for many years, decades perhaps… so this is not something new to him by any means… he’s been paying property taxes for as long as he’s owned a home.
However, what we’re being asked to believe is that…
- Until all of a sudden, Frederick found himself in the hospital.
- Next thing you know he realizes that he’s forgotten to pay his property taxes… the taxes that he’s been paying for years.
- He’s in a panic, calling his servicer, getting the runaround… they can’t tell him how much he owes.
- Months go by… he’s heading for foreclosure… he gets the notice, rips it open, looks… but no… the amount he owes isn’t listed there either… oh, noooooooo! Whatever can he do?
- He’s at the end of his rope. The only thing left to do is hire a lawyer to sue the lender, a process that apparently starts with pitching this preposterous yarn about a man whose life was ruined after his new mortgage started saving him $2,000 a month, give or take, to the New York Post.
So, saving someone $2,000 a month can actually ruin that person’s life? Imagine if you saved someone $5,000 a month. That would probably be devastating, is that what we’re saying here?
How did this guy’s life get ruined exactly? Well, he started saving $2,000 a month and everything just went to pot from there?
Just as I expected, it’s the very last paragraph of the Post’s story that tells the true tale.
The very last paragraph of the Post’s article reads…
“Feil says his finances have been decimated by medical bills and repairs to his home after Superstorm Sandy. He fears that if his attorney can’t help him obtain a grant for the property tax arrears soon, he’ll wind up on the street.”
Alright, now I see what’s going on. There’s no reason to keep up this charade. This is a man who has been wiped out financially later in life, when it’s next to impossible to bounce back. And his situation is particularly painful and frustrating because it wasn’t his doing that put him in financial sstraights, at least not from the information in the Post’s article.
For one thing, I believe that I recently read that unexpected medical expenses are the leading cause of bankruptcy and that such bills precede 50 percent of foreclosures. The cost of medical care in this country is shameful. And there’s nothing you can do about it… it’s not like it’s optional.
To be hit with a mountain of medical bills… and then to wake up to Superstorm Sandy is the sort of epic bad luck about which movies are made. And I have all the sympathy in the world for Mr. Feil’s predicament.
There’s no question in my mind that Frederick’s situation should not have ended in foreclosure, and I was relieved to read that it did not. And I’m in total agreement that whatever runaround he endured was too much runaround. It should never be that hard to get a servicer to provide assistance to a homeowner in need.
But it wasn’t the reverse mortgage that ruined Frederick’s life, was it? Because it sounds to me like Frederick’s life was knocked off its foundation by exorbitant and unexpected medical bills followed by being hit by the Storm of the Century… two “life events,” back to back.
There are few among us that could get through that sort of thing without having the scars to prove it, and many would never recover.
The reverse mortgage, however, didn’t cause Mr. Feil any harm. I’d even have to bet that had he not refinanced to the reverse mortgage, he would have lost the home to foreclosure or been forced to sell it. It’s because of the HECM reverse mortgage that he was able to keep the home.
You see, during the period of time we’re talking about, if he was finding it difficult or even impossible to pay his property taxes, then obviously there’d be no way he could have made monthly mortgage payments too, right?
Think about it this way… Without the reverse mortgage, Mr. Feil’s life would have been ruined about $2,000 a month faster, and he’d be in foreclosure for failing to make his mortgage payment instead of just his property taxes.
The Post’s article is a crap sandwich from the first bite to the last… the headline alone is so monumentally irresponsible that it should be a violation of the Truth in Advertising laws… if those even exist anymore.
However, in this case it’s far worse than just getting a few facts wrong in an article… the Post’s story is all but certain to scare some away from a HECM reverse mortgage for absolutely no good reason and in my mind that’s just as bad as misleading someone into getting a reverse mortgage.
It’s one thing to run a misleading and sensationalistic story when the subject is something like weight loss. If people try the latest fad diet but don’t lose weight as they were promised, it’s really not that big a deal… they’re certainly free to try a different approach to weight loss.
How someone who is over 62 should consider using a HECM or reverse mortgage, however, is far too important a subject… like misleading someone about Medicare or Social Security. When you mislead someone about a HECM, you’re impacting someone’s retirement years.
I imagine being 95 years old, laying on my death bed, when someone walks in and tells me that they’re sorry about not explaining the HECM accurately years ago because I could have had an additional $300,000 to live on over the last 10 years. Oops. Sorry about that. Too late now, I suppose.
Wouldn’t that be great? Some schlock, pseudo journalist couldn’t be bothered to write about the HECM accurately, someone’s life was altered for the worse and there’s no going back.
If that happened to my mother, I’d want to go on the warpath… which is precisely why I’m writing this article now in response to the drivel written by Catherine Curan for the New York Post about the reverse mortgage that ate New York, or whatever. Catherine knows nothing about a HECM reverse mortgage… less than nothing, if that’s possible. She should be ignored, shunned or laughed at, but certainly not taken seriously in the least because… she’s dangerous.
And lastly… while I do understand that the New York Post is never confused with the venerable New York Times, if you get my drift, it’s also not exactly the National Enquirer either. When I read the Post, I don’t expect to come across a Pulitzer perhaps, but I also don’t expect to read a front page story about aliens teaching in public schools.
So, I guess I was wrong about that because this story might as well have been titled: “Reverse Mortgages Create The Walking Dead.” It’s not news, it’s fiction.
I’m not saying that every journalist should be a cheerleader for the HECM or anything like that for that matter. Journalists should question things, that’s their primary job as far as I’m concerned. But they used to feel an obligation to get their facts right, especially when writing about a subject of such importance to such a large segment of the population.
And I don’t think that the Post (or most others in the media today) cares all that much about getting things wrong. If they did, they wouldn’t.
IF YOU WANT TO KNOW THE FACTS ABOUT THE HECM REVERSE MORTGAGE PROGRAMS AND HOW THEY MIGHT APPLY TO YOUR INDIVIDUAL SITUATION…
YOU MAY FEEL FREE TO EMAIL ME AT: MANDELMAN@MAC.COM.
(And that includes you, Catherine Curan of the New York Post, or anyone else who wants to debate the HECM programs… anytime, anywhere… I’m your huckleberry.)