From the U.S. Government Accountability Office, www.gao.gov Transcript for: Federal Oversight of Reverse Mortgages Description: We're talking about reverse mortgages, an increase in defaults, and the Federal Housing Administration. Related GAO Work: GAO-19-702: Reverse Mortgages: FHA Needs to Improve Monitoring and Oversight of Loan Outcomes and Servicing Released: September 2019 [ Background Music ] [ Alicia Puente Cackley: ] For the past 5 years, there's been a growing percentage of reverse mortgages that have ended in default. [ Matt Oldham: ] Welcome to GAO's Watchdog Report, your source for news and information from the U.S. Government Accountability Office. I'm Matt Oldham. Most reverse mortgages are made under a Federal Housing Administration program and in recent years, we've seen a growing percentage of FHA-insured reverse mortgages end in default. Alicia Puente Cackley, a Financial Markets and Community Investment director with GAO is here to talk about a report on FHA's monitoring and oversight of these loans. Thanks for joining me, Alicia. [ Alicia Puente Cackley: ] Thank you for having me. [ Matt Oldham: ] First, can you talk a little bit about what a reverse mortgage is, and why so many are going into default? [ Alicia Puente Cackley: ] Sure. A reverse mortgage is a type of loan that's available specifically to senior homeowners. It allows them to draw on the equity in their home while they're still living in the home. And for that reason, it's considered really a -- a tool for helping seniors age in place, so it's one of a -- of a number of ways that -- that people can benefit from the equity in their home and stay in their home. The problem with defaulting is, because these reverse mortgages have certain conditions that go along with them, the seniors are required to comply with those conditions, they're required to pay the property taxes and homeowners insurance on the home. They're required to make the home their primary residence and they also need to keep the home in good condition. If they don't comply with any of those conditions, they can go into default and eventually could be at risk of losing the home to foreclosure if they can't correct the default. [ Matt Oldham: ] And how many reverse mortgages end up in default? [ Alicia Puente Cackley: ] So, what we found was that reverse mortgages that ended in 2018 so that they were either repaid or they became due that year, of -- of all of those reverse mortgages, 18 percent ended because the homeowner defaulted, and we found that the defaults have been increasing. So, over the past five years, they went from 2 percent to 18 percent, which is quite a large increase. [ Matt Oldham: ] So, are there any options for homeowners who are facing default? [ Alicia Puente Cackley: ] So, there are options for homeowners who are at risk of defaulting, FHA has allowed mortgage servicers to put borrowers into repayment plans, there are options for delaying at least, or potentially preventing foreclosure through those repayment plans. [ Background Music ] [ Matt Oldham: ] So, it sounds like while defaults on reverse mortgages are increasing, there are options for homeowners who have reverse mortgages and are at risk of defaulting. So, Alicia, how many of these homeowners are on repayment plans? [ Alicia Puente Cackley: ] There are about 22 percent of borrowers that have received those kinds of repayment options, but FHA isn't really tracking or reporting on who's defaulted and who is using those foreclosure prevention options. [ Matt Oldham: ] So, what can FHA do to improve things? [ Alicia Puente Cackley: ] So, we made nine recommendations to FHA to help strengthen their oversight of the Reverse Mortgage Program. So, we think FHA needs to monitor borrower defaults better, they need to know the extent to which borrowers are receiving repayment plans and foreclosure options. They also need to revise procedures for selecting and reviewing companies that service these mortgages. They need to ensure that the companies are following program requirements, including requirements that are designed to protect borrowers. And we think FHA needs to do a better job of collecting and analyzing consumer complaints on reverse mortgages. [ Matt Oldham: ] So, what's the bottom line of this report? [ Alicia Puente Cackley: ] The bottom line is, over the past 5 years, there's been a growing percentage of reverse mortgages that have ended in default and when this happens, seniors are at risk.They're at risk of foreclosure of losing their homes. And FHA has taken some steps to address the problem, but it needs to do more to strengthen their -- their program oversight so that it knows how well the program is helping seniors age in place, and so it's positioned to help prevent negative outcomes for borrowers. [ Matt Oldham: ] Alicia Puente Cackley was talking about a GAO report on FHA-insured reverse mortgages. Thank you for your time, Alicia. [ Alicia Puente Cackley: ] You're welcome. [ Background Music ] [ Matt Oldham: ] And thank you for listening to the Watchdog Report. To hear more podcasts, subscribe to us on Apple Podcasts. For more from the congressional watchdog, the U.S. Government Accountability Office, visit us at gao.gov.