Michele McCoy always thought she and her siblings would inherit the house she grew up in on Decatur Street on Detroit’s west side.
Her father, a Detroit Police officer, and her mother, a schoolteacher, bought the three-bedroom bungalow in the late 1960s after moving here from Wheeling, West Virginia.
“It would be part of our family legacy because that was the first property my family bought when they moved to Michigan,” McCoy, 55, said.
But that changed after a visit nearly 20 years ago from a door-to-door representative of a reverse mortgage lender.
The house on Decatur now is one of 1,884 reverse mortgage foreclosures in Detroit between 2013 and 2017. No other city in the country has seen more in that span, according to a USA Today analysis of 1.3 million loan records and hundreds of foreclosure cases. The Free Press and USA Today reporters reviewed data and conducted interviews in recent weeks to try and understand why Detroit and other urban communities have borne the brunt of the reverse mortgage foreclosure trend.
Reverse mortgages work like this: Lenders appraise the value of a house and allow homeowners to borrow back money against that market value.
Borrowers can stop making monthly mortgage payments, and they can stay put for life, so long as they maintain the home and pay property taxes and insurance. For years, reverse mortgages required no credit check and government-mandated financial counseling can be as easy as a 20-minute phone call.
At the end — a move-out, death or default — the bank calls the loan due, to be paid back either by the sale of the home or an heir or homeowner repaying the loan money. Lenders and their investors make their money through origination fees that can top $15,000 with fees and mortgage insurance, and by charging interest on the loan balance.
Reverse mortgage lenders targeted Detroit and other large urban areas over the last couple decades, sometimes with misleading sales tactics.
Nearly 100,000 of the loans designed for seniors to generate some cash have now failed nationwide, leaving those elderly borrowers to navigate the often-unforgiving foreclosure process
McCoy’s parents, William and Virginia Creighton, took out an $84,000 reverse mortgage in 2000 on the home for repairs. The house needed a roof, pipe work in the basement and a furnace, McCoy said.
The Creightons fell behind on their property taxes and lost the house to foreclosure in 2016. Fannie Mae sold the property the next year to Paramount Consortium, a Warren-based company, for $4,500 — an amount so paltry that McCoy said she wouldn’t share with her parents.
They are now both in their 90s and live in an apartment in Westland. Looking back, McCoy said she doesn’t think her father fully understood the reverse mortgage.
“He was just confused,” she said.
Detroit edged out Chicago — with a population quadruple Detroit’s — to lead the nation in reverse mortgage foreclosures from 2013 to 2017.
What’s more, Detroit has three of the top 10 ZIP codes in the United States for reverse mortgage foreclosure in the last five years. Those ZIP codes are 48221, which includes the University District, and two others nearby, 48235 and 48227.
Detroit was ripe for reverse mortgage lenders in the past couple decades because of its high senior population and the high number of homeowners with equity built into their homes. Even if the city’s homes were declining in value, Detroit was attractive for lenders who could rake in closing costs and other fees.
For low-income seniors who needed help with living expenses or home repairs, a reverse mortgage seemed like an attractive option to secure a new cash flow. Borrowers must be at least 62 years old to qualify for a reverse mortgage.
“You have a large population of homeowners with equity built into their homes,” said Joshua Akers, an assistant professor of geography and urban regional studies at the University of Michigan-Dearborn. “You have a large senior population that is also looking for additional income.”
Seniors who take out a reverse mortgage are still responsible for their property taxes and home insurance, and a missed payment can trigger a foreclosure. Loans also come due for surviving family members after the death of the borrower. If the family does not cover the loan balance, the lender can foreclose on the property.
The effects of reverse mortgage foreclosures are particularly devastating for seniors. Many are out of the job market, making it more difficult to rebound from losing their home.
“For many Americans, the home is their greatest asset. They’re putting it on the line,” Akers said. “For a lot of these seniors, losing their home is the last thing they had.”
Detroit’s place at the top is emblematic of a national pattern.
Reverse mortgages end in foreclosure six times more often in predominantly black neighborhoods than in neighborhoods that are 80% white.
Even comparing only poorer areas, black neighborhoods fare worse. In ZIP codes where most residents make less than $40,000, the analysis found reverse mortgage foreclosure rates were six times higher in black neighborhoods than in white ones.
Chicago was second in USA Today’s analysis of reverse mortgage foreclosures with 1,846 from 2013 to 2017. Baltimore had 1,516; Miami 1,329; and Philadelphia had 1,027 to round out the nation’s top five.
One Reverse Mortgage, part of the Detroit-based Quicken Loans family of companies, is an industry leader. It made $788 million worth of government-backed reverse mortgages in 2018, the second-highest behind American Advisors Group, which issued $2.7 billion in loans, according to Inside Mortgage Finance, a company that tracks mortgage statistics.
Gregg Smith, CEO of One Reverse Mortgage, said home equity should be factored into seniors’ financial plans. “It empowers the senior to utilize the equity in their home in a way they deem to fit their needs,” he said.
Most of One Reverse Mortgage’s loans, by volume, are in California, Florida and Texas — places with high populations and home values, Smith said. The company was not very active in Detroit from 2001 to 2009. It only originated 17 loans in that time, according to USA Today’s data.
Before finalizing a loan with One Reverse Mortgage, seniors undergo a financial assessment and counseling session where obligations like property taxes and home insurance are explained, Smith said, adding that his company has been up front and clear with borrowers throughout its existence, which dates to 2001.
“From our perspective, I think we do an amazing job with every client and putting them in a position to succeed,” he said.
Mary Jo Homrich, 80, said the reverse mortgage she took out from AAG four years ago on her home in Portage has worked out well.
“I have money I can draw from it if I needed,” Homrich said. “I’m glad that money’s available because I’ve had to have a couple things done to the house.”
Her home was worth about $120,000 and she used the reverse mortgage to pay off a $40,000 debt and obtain a $20,000 line of credit that can be used when she needs it. Homrich, a retired bookkeeper, said she has talked with her children about the loan and makes sure to stay up to date on her property taxes and insurance.
“I’m hoping I can stay here for another 10, 15 years. I plan on staying around,” she said. “It was a good deal for me.”
But in Detroit, housing advocates and legal aid lawyers have seen families suffer as a result of reverse mortgages.
In the mid-2000s, risks of foreclosure often were not clear. Some advertisements for reverse mortgages even claimed that borrowers would not have to make any payments, said Joe McGuire, a staff attorney in Detroit for Michigan Legal Services.
“There was an era, especially during the mortgage boom, where there was pretty unscrupulous pushing of these,” McGuire said.
McGuire said he mainly sees two types of eviction cases stemming from reverse mortgages.
The first type of case involves a borrower who is alive but fell behind on property tax or insurance payments. Those payments previously may have been escrowed into the original mortgage bill. “It’s a big change for a lot of people to go from that to having to pay the property taxes and the insurance themselves,” he said.
The second common instance involves children who lived in the home of a deceased borrower. The house is foreclosed on to satisfy the loan, leaving the senior’s child to go from thinking they were going to inherit the house to getting evicted.
“It’s very disruptive to people,” McGuire said. “With working-class people of color, most of the generational wealth is in the home and that home being passed on.”
Typically, there is an opportunity for families to redeem homes lost to reverse mortgage foreclosure at a sheriff’s sale. The price is based on an appraisal by the federal government and may be less than the loan balance, said Kim Stroud, director of mortgage foreclosure prevention and land contract support for the United Community Housing Coalition in Detroit.
Stroud said UCHC has small loan program that can help with those redemption costs.
Seniors considering a reverse mortgage should make sure to get counseling from an agency certified by the U.S. Department of Housing and Urban Development, said Dannielle Laura, interim director of economic opportunity services for the Wayne Metro Community Action Agency.
“It’s easy to think (a reverse mortgage) can be the answer to your prayers,” Laura said. “My advice would be that a little healthy skepticism never hurt anyone.”