Thursday, May 26, 2016

Reverse Mortgages, "Widow Foreclosures", Ticking Time Bombs?

In Minneapolis, Minnesota, KMSP-TV Channel 9 reports:
  • An 83-year old widow who has lived in her Minnesota house for more than 50 years is facing foreclosure and state officials say it could happen to other unsuspecting spouses who have reverse mortgages.

    Colleen Hodroff and her husband, Monroe, moved into their Minneapolis home in 1963 and raised six children in a tidy tutor just off of Cedar Lake. They were often called the Brady Bunch of Ewing Avenue.

    "We've loved this house. It's our heart and soul," Colleen said in an interview with the Fox 9 Investigators.

    It was a classic marriage of the times. Carol raised the kids and Monroe, who ran several convenience stores, paid the bills. He died two years ago at the age of 92.

    "My husband and I've loved this home, to think of it being taken away is gut wrenching," Colleen commented.

    Just 10 days after Monroe died, she got a letter from the bank saying it was foreclosing on the home and she had 60 days to leave.

    10 years ago the Hodroff's had taken out a reverse mortgage. Monroe had seen a commercial for a company called Financial Freedom, promising people 62 or older they could live off the equity already built up in their home, get cash up front, or pay off debt, all with no mortgage payments.

    As the Hodroff's understood it, they could both live in their home until they died, when the bank would take possession of the house.

    Suing to keep her home

    Colleen filed a lawsuit against the bank. According to her attorney, John Braun, one of the documents Hodroff signed over at the time was the deed to the house. She had given up her interest in their home, by literally taking her name off their mortgage. She said she couldn’t fathom the implications of such a decision.

    "What she tells me is: when her husband presented her something to sign, she signed it," said Braun.

    In return, the bank got to calculate the reverse mortgage based on Monroe's life expectancy, who was more than a decade older than his wife. The Hodroff’s got more money based on that calculation. The bank would also likely get their money more quickly that way.

    The practice even has a name, "widow foreclosures,” and sometimes the changes are made at the last minute.

    "This particular lender is notorious for making statements at or near the closing where the excluded spouse is told don't worry about it you'll be able to live there as long as you want, we'll put you back on later," said Braun.

    Financial Freedom was the reverse mortgage division of the notorious IndyMac, the sub-prime lender that collapsed in the 2008 financial crisis.

    It was sold to a group of billionaire investors, including Donald Trump's new campaign fundraiser, Steve Mnuchin, who renamed it OneWest Bank. OneWest Bank merged last year with CIT Group.
    Minnesota Commerce Commissioner, Mike Rothman said it's just one of many cautionary tales when it comes to reverse mortgages. And the true scope of the problem, isn't even known.

    "These are ticking time bombs. There's only one spouse on them and usually an older spouse, and they're still out there," said Rothman.