California seniors turned to reverse mortgages to stay in their homes. More than 9,000 loans failed.

You have seen those ads on TV for “reverse mortgages”.  It sounds very appealing—borrow money on your home and live in it for a lifetime.  A luxury retirement was offered.  That is not real life.

“But in 2018, Dantez de Guerrero received a notice. It said the house, a 1,600-square-foot dwelling hidden behind thick brush in the Dream Homes neighborhood of Cathedral City, could be sold from under his feet.

Thirteen years earlier, Dantez de Guerrero had taken out a reverse mortgage on the property. The mortgage, which is only accessible to homeowners 62 and older, allowed him to borrow against the value of his house, gaining cash in exchange for giving up home equity. As long as he continued paying his property taxes and insurance, and maintained the home, he could remain in Cathedral City for the rest of his life. The loan would only come due if he moved out of his house, died or defaulted.

But Dantez de Guerrero, who suffers from severe scoliosis and neuropathy that stops him from working, fell $10,000 behind on his taxes. For a while, he said, his mortgage servicer covered the missed payments. In January 2018, Dantez de Guerrero learned that his loan was in default and that a trustee planned to auction off his home to the highest bidder instead. 

 At 82 years old, he is losing his home.  More than 9,000 others have lost their home as well.  Buyer beware—it is not all money now and financial safety for ever.

California seniors turned to reverse mortgages to stay in their homes. More than 9,000 loans failed.

In pockets of California’s Inland Empire, reverse mortgage loans were unusually likely to end in foreclosure.

Amy DiPierro, Palm Springs Desert Sun, 6/12/19   

Edmund Dantez de Guerrero, 82, had planned to live out his days in the Southern California home he inherited from his parents, surrounded by his paintings and in the company of his dog, Angus.

But in 2018, Dantez de Guerrero received a notice. It said the house, a 1,600-square-foot dwelling hidden behind thick brush in the Dream Homes neighborhood of Cathedral City, could be sold from under his feet.

Thirteen years earlier, Dantez de Guerrero had taken out a reverse mortgage on the property. The mortgage, which is only accessible to homeowners 62 and older, allowed him to borrow against the value of his house, gaining cash in exchange for giving up home equity. As long as he continued paying his property taxes and insurance, and maintained the home, he could remain in Cathedral City for the rest of his life. The loan would only come due if he moved out of his house, died or defaulted.

But Dantez de Guerrero, who suffers from severe scoliosis and neuropathy that stops him from working, fell $10,000 behind on his taxes. For a while, he said, his mortgage servicer covered the missed payments. In January 2018, Dantez de Guerrero learned that his loan was in default and that a trustee planned to auction off his home to the highest bidder instead. 

“I may be 82, but I’m still as sharp as a whistle and I’m going to do everything I can to keep my house,” he said.

A USA TODAY review of government foreclosure data between 2013 and 2017 found that nearly 100,000 reverse mortgage loans have failed, burdening elderly borrowers and their families and causing property values in their neighborhoods to crater. Among the hardest hit borrowers are people living near the poverty line in pockets of Chicago, Baltimore, Miami, Detroit and Philadelphia. And USA TODAY found that reverse mortgages were more likely to end in foreclosure in black neighborhoods than in white ones.

Consumer advocates say the analysis reflects a pattern they’ve long observed, of lenders targeting lower-income, black neighborhoods, underemphasizing the risks of the loans and overselling their benefits. 

While the Department of Housing and Urban Development five years ago enacted policy changes to protect seniors, USA TODAY’s analysis of more than 1.3 million loan records — done in partnership with Grand Valley State University and with support from the McGraw Fellowship for Business Journalism — found that families are still suffering from reverse mortgage loans that predate the reforms. 

In California, the loans were unusually likely to end in foreclosure in pockets of the Inland Empire, the region of Southern California where Dantez de Guerrero lives. Lenders foreclosed on seniors living in the Inland Empire, which spans Riverside and San Bernardino counties, at two to three times the national average. Reverse mortgage foreclosures were as high as 10 times the national average in Joshua Tree’s 92252 ZIP code, one of the worst-hit neighborhoods.

Marlan McClanahan, who works for the Fair Housing Council of Riverside County, a nonprofit organization that helps people avoid foreclosure, advises as many as 100 reverse mortgage borrowers a year.

Looking at a list of communities that have experienced reverse mortgage foreclosures, McClanahan recognized some places that were also buffeted by the foreclosure wave of more than a decade ago, when the Riverside metro area had one of the highest rates of conventional home loan foreclosure in the country, following the collapse of the housing market.

“It’s alarming,” he said. “At the same time, it’s like history is repeating itself.”

Reverse mortgages were invented in 1961 but skyrocketed in popularity during the 2000s. In celebrity-studded television advertisements, as well as in mailers and door hangers, some lenders have aggressively marketed their reverse mortgages, urging would-be customers to call 800 numbers and touting the “risk-free” benefits of the loans.

Juan De Lara, a geographer at the University of Southern California who studies the Inland Empire, said it appears as if the mortgage lending industry transitioned from targeting one kind of household for subprime loans to targeting a different segment of the population — seniors — for reverse mortgages. 

“The same kind of predatory lending going on in subprime then switched over to seniors, another population that was vulnerable because of their fixed incomes,” he said.

Wells Fargo, which wrote more reverse mortgages in the Inland Empire between 2001 and 2009 than any other lender but has since exited the reverse mortgage market, was hit with a $2 billion penalty as part of a settlement with the Justice Department for allegedly lying about subprime mortgages. The company did not admit liability in the settlement.

Still, the number of reverse mortgage foreclosures between 2013 and 2017 is small compared recession-era statistics, when the nation saw 4.3 million completed foreclosures between 2008 and 2012, according to ATTOM Data Solutions.

Urban African Americans are hardest hit as nearly 100,000 loans have failed. Jasper Colt, USA TODAY

Many reverse mortgage borrowers in the Coachella Valley spoke of their reverse mortgages as useful, even critical, components of their finances. Some residents interviewed for this story said their reverse mortgage loans have allowed them to stay in their homes, pay off existing mortgages, finance needed home improvements or pad their retirement savings.

Federal regulators and mortgage lenders argued the foreclosure statistics are only part of the story because reverse mortgages can go into foreclosure if the estate of a deceased homeowner doesn’t repay the loan. And although regulators said evictions are rare, it’s impossible to verify that claim, since the Department of Housing and Urban Development doesn’t count evictions.

In Riverside and San Bernardino counties, above average reverse mortgage foreclosure rates were a part of life in communities large and small. 

From the transportation hub of Barstow to the agricultural community of Blythe, a smattering of 56 Inland Empire communities with 1,000 or more seniors ranked in the top decile in the country for reverse mortgage foreclosures per senior. One ZIP code in the unincorporated desert community of Joshua Tree had one reverse mortgage foreclosure for every 52 seniors, among the highest ratios in the state.

Other rural areas near the entrance to Joshua Tree National Park were also disproportionately impacted. Neighborhoods in Yucca Valley and Twentynine Palms — communities that millions of visitors pass on their way to the park — had anywhere between six and eight times the national average of reverse mortgage foreclosures per senior.

De Lara said many areas of California with the highest number of reverse mortgage foreclosures per senior, like ZIP codes in Hesperia, Crestline and Big Bear City, have something in common: They’re more sparsely populated than the places impacted by the implosion of the subprime lending market.

“Aside from Oakland and Los Angeles, it’s all of these communities where it seems to me, historically, people have moved to get away from the city and the high cost of living in the city,” he said.

But reverse mortgage foreclosures also affected the suburban resort communities of the Coachella Valley. ZIP codes in Desert Hot Springs, Thousand Palms, Palm Desert and Indio each ranked in the top 10% in the country by foreclosures per senior.

The two counties’ largest cities were also not immune. Neighborhoods in the cities of San Bernardino, Riverside and Moreno Valley experienced an outsized number of reverse mortgage foreclosures given the size of their senior populations.

Despite the higher concentration of reverse mortgage foreclosures in parts of Riverside and San Bernardino counties, staff reached in the offices of some local elected officials said constituents don’t often contact them for help with reverse mortgages in foreclosure.

Gloria Sanchez, who sits on the Advisory Council of the Riverside County Office on Aging, said that’s because seniors at risk of defaulting on their reverse mortgages are sometimes too ashamed of their predicament to ask for assistance.

“A lot of times our seniors are embarrassed about this type of thing happening,” she said. “When they don’t share it, there isn’t much we can do.”

McClanahan with the Fair Housing Council of Riverside County said a variety of factors can cause reverse mortgage borrowers to default on their loans. Sometimes, he said, they fall behind on their taxes because of an increase in their bill. Sometimes health issues, like dementia, can be a factor. And sometimes, he said, seniors are apprehensive about signing an annual disclosure form confirming they still live in their homes, wary that it might be a scam.

Reverse mortgage lenders for years calculated how much to loan potential borrowers based only on their ages, the values of their homes and the current interest rate — no credit check required. Today, the government requires borrowers to get financial counseling and makes lenders assess whether borrowers will be able to meet their loan obligations.

Borrowers never owe more than the initial appraised value of their home — a good deal for homeowners so long as home values continue to rise.

But after home values crashed during the recession, loan balances sometimes exceeded market value.

10 questions to ask about reverse mortgages

Experts suggest seniors and their family members have an open discussion about these topics before they apply for a reverse mortgage. Here is a downloadable guide to help start those conversations.

Get the guide

Lenders, however, could still make back their money. If the sale of a home doesn’t meet a reverse mortgage lender’s expenses, a Federal Housing Administration fund, which insures the loans, is on the hook for the difference. The fund is more than $13.6 billion in the red.

Even for borrowers that are not at risk of defaulting on their reverse mortgages, the loans can be a source of stress.

Bob Klinck, a Palm Springs resident, thinks he might just outlive his reverse mortgage payments.

In April 2018, the 87-year-old got a statement saying he only had 37 monthly payments of $1,265 before his monthly reverse mortgage money runs out.

“When I got into this thing the idea was, you were paid until you croaked,” he said, “My problem is, I might outlive my money.”

Up until recently, the reverse mortgage had seemed like a great deal for Klinck. He’s not married. He doesn’t have heirs interested in acquiring the house or dependents that would need to live in it after his death.

But now Klinck worries he might have to make some lifestyle changes in order to pay his living expenses after the reverse mortgage runs out. He has a 2005 bronze Thunderbird and regularly spends weekends out of town showing it at car shows — if need be, he said, he could sell the Thunderbird or the second car he drives.

But he doesn’t want to think about that choice right now.

“I’ll cross that bridge when I come to it,” he said.

Dantez de Guerrero has, so far, avoided becoming another statistic.

He took out his reverse mortgage in 2005, after his partner Robert died. Without Robert, Dantez de Guerrero was convinced he wouldn’t live very long. He used the reverse mortgage to pay off a $34,000 loan and nearly $14,000 in back taxes — and then, Dantez de Guerrero went on a shopping spree, treating himself to a $100 bottle of wine as a birthday present and $900 worth of clothing from the best menswear shop in town.

But living expenses began to pile up. Dantez de Guerrero had car payments, utility bills and medical issues. He had a small dog, Angus, to feed. He had a shoulder and a hip replaced. He ran out of money from the reverse mortgage and he stopped painting, a passion of his since the mid-1990s.

Dantez de Guerrero stopped paying his property tax bill, too.

In 2017, he received a notice: His reverse mortgage was in default. The following year, he got a second notice, saying his home would be auctioned for sale.

Dantez de Guerrero decided to raise some money, quickly. Looking around his house, he opted to sell some paintings.

“They were not for sale, but I realized the importance of having to sell them,” he said. “They were amongst my favorites.”

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With help from mortgage counselors and local real estate agents, Dantez de Guerrero can stay in his home, at least for now. He said he has until January 2020 to pay his mortgage servicer the property taxes he owes.

But he’s not sure how he’ll raise the money. He lives on a fixed income of about $850 a month. He’s thinking about selling more paintings and is trying to paint new ones.

“I’ll sell anything,” he said.

Amy DiPierro covers business and real estate at The Desert Sun. Reach her at amy.dipierro@desertsun.com or 760-218-2359. Follow her on Twitter @amydipierro.

About Stephen Frank

Stephen Frank is the publisher and editor of California Political News and Views. He speaks all over California and appears as a guest on several radio shows each week. He has also served as a guest host on radio talk shows. He is a fulltime political consultant.