Surging Foreclosures & HECMs


What do surging foreclosures mean for future HECM applicants?

Unemployment, foreclosures, and interest rates ultimately impact reverse mortgage lending. The point of today’s episode is not to dwell on the negative but to take an honest hard look at economic factors that can no longer be ignored amid a housing market and economy that frankly feel surreal. Presently, home prices remain frozen near their record highs despite mortgage rates doubling in two short years with a few notable exceptions. Also, the U.S. GPD continues to show robust economic output despite our national debt reaching unsustainable levels. What gives and what are the potential impacts on reverse mortgage lending?

A frozen housing market & foreclosures


First, let’s examine the housing market. Home sales have plummeted to record lows- what many refer to as a frozen housing market. The primary culprits are low inventory, high mortgage rates, and stubbornly high home prices that have pushed most would-be homebuyers to the sidelines. 


However, the housing market could thaw quickly should foreclosures continue to surge. Redfin reports foreclosures have steadily risen as interest rates increased. And a new report from ATTOM reveals an 8% increase in foreclosure filings. In addition, REO numbers in several states have reached levels seen since the Great Financial Crisis and Housing Crash of 2008. The annual increase in foreclosure filings in February jumped 51% in South Carolina, 50% in Missouri, 46% in Pennsylvania, and 7% in Texas. Despite this surge in foreclosures, 28 states saw a reduction in foreclosure activity. That would indicate the regional impact of employment or underemployment. 


With that in mind let’s look at the highest foreclosure rates for larger cities with a population over 200,000 residents. In February there were 1,367 foreclosure starts in New York City, 998 in Houston, 808 in Los Angeles, 792 in Chicago, and 777 in Miami. Keep in mind the long-term ripple effect that continues from the expiration of foreclosure moratoriums and evictions. 


The annual uptick in U.S. foreclosure activity hints at shifting dynamics within the housing market,” said Rob Barber, CEO at ATTOM, in a press release about the report. “These trends could signify evolving financial landscapes for homeowners, prompting adjustments in market strategies and lending practices”…which really doesn’t tell us anything. Underlying those shifting dynamics are the unemployment rate, interest rates, and economic conditions. More importantly, increased foreclosures whether locally or nationwide increase inventory and push down home values. This would impact potential reverse mortgage borrowers in affected areas. 

Unemployment and the national debt


Bloomberg Economics ran a million forecast simulations on the US debt outlook. 88% of them show borrowing on an unsustainable path.  Bloomberg reports the Congressional Budget Office’s latest projections show US federal government debt is on a path from 97% of GDP last year to 116% by 2034 — higher even than in World War II. 


This should come as no surprise with spendthrift lawmakers in both parties in Washington DC spending away the future of coming generations. The trick is we enjoy the benefits of deficit spending in the short term and Congress knows this as it keeps them in good standing with voters. However, as debt levels continue to rise creditors and those buying U.S. treasuries will begin demanding higher returns to offset the risk. Reduced demand for U.S. Treasuries would push interest rates up even further, slow the economy, and lessen the value of the dollar. All of these factors will contribute to further downward pressure on home values. Should the government continue to print money to mitigate the impacts of a burgeoning debt then inflation would accelerate once again.


The bottom line is home prices are likely to soften in several metropolitan areas across the country. A nationwide housing depression is highly unlikely barring any unforeseen black swan event. In the meantime, all we can do is be observant of national and local economic trends and continue to search for older homeowners who could use some financial relief that a reverse mortgage could provide. 


‘More reverse mortgage servicing protections needed’

reverse mortgage foreclosure

The NCLC recommends the CFPB & the FHA create these reverse mortgage servicing protections

After several years of servicing issues for both borrowers and their heirs reverse mortgage originators and lenders alike welcomed the news in March 2022 that Celink had been awarded the servicing of HECM loans held in assignment by the Federal Housing Administration. However, a history of previous servicing shortfalls from numerous servicers has led some to call for increased oversight and protections to prevent unnecessary foreclosures of HECM loans.

On February 6th the National Consumer Law Center published an article by Sarah Bolling Mancini entitled, “Unmet Promise: Reverse Mortgage Servicing Challenges and How to Preserve Housing Stability for Older Adults”. Mancini outlines several servicing shortfalls that may have led to avoidable foreclosures. 

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HECM Refis are not growing our market

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HECM Refis are not growing our market

RMI’s John Lunde told RMD while HECM endorsements are strong our industry’s production is not quite as robust as one may believe when considering HECM-to-HECM refinances. 

Other Stories:

  • Will there be a wave or a trickle of evictions?

  • Homeowners are hurting but property tax panel looks elsewhere

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As moratoriums end seniors stand to lose the most

As moratoriums end, seniors stand to lose the most

A federal ban on evictions expired Saturday, July 31st. Consequently millions of Americans are facing the specter of housing insecurity or homelessness.  The financial protections put in place for millions of households throughout the pandemic including foreclosure moratoriums, stimulus checks, and unemployment benefit bonuses only delayed the inevitable for some.

While the federal government has extended eviction and foreclosure protections multiple times, it’s unlikely we will see another intervention. However, as we are recording today’s show we should note that anything can happen. Case in point- the rapid increase of new cases of the Covid Delta Variant led the CDC to reverse its recent mask guidance for vaccinated individuals. While Covid hospitalizations and deaths had dropped precipitously the government could justify further stimulus and housing protections due to the potential economic impact of the Delta variant strain.

While eviction moratoriums are scheduled to end on July 31st struggling homeowners have until…

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