Kenneth and Sadako Miller were struggling to pay their bills six years ago when they saw a TV commercial that seemed to provide an answer to their financial woes.

The elderly couple, a disabled Vietnam veteran and his Japanese-born wife, called the number on the screen and soon obtained a government-insured reverse mortgage — a product marketed as a way to turn the value of your home into cash payments without a sale, and still live in it.

But instead of feeling secure in their modest three-bedroom in Gardner, Massachusetts, the Millers have been dealing with a foreclosure notice. The stress made him ill and drove Sadako to bouts of crying, Kenneth said.

“I’m sorry we ever did it,” said Miller, referring to the loan. “We thought it would make it easier.”

The Millers, aged 69 and 68, have joined a growing number of reverse mortgage holders who are learning they can be thrown out of their homes after all. That’s because of what consumer advocates say is a poorly understood loan feature that allows foreclosures when borrowers fall behind on real estate taxes or house-insurance premiums.

Recent directives from the federal government have caused more lenders to get tough about the unpaid property charges, according to mortgage companies and others familiar with the market.

Lenders who can’t work out a repayment plan with homeowners must foreclose or risk losing federal insurance. The insurance protects the lenders against loss on 600,000 reverse mortgages totaling about $146 billion in debt — almost the entire reverse market.

There is “a historic backlog" of loans with unpaid property charges, which are coming due, according to Peter Bell, president of the National Reverse Mortgage Lenders Association.

Nearly 24,000 borrowers in the U.S. received notices that their reverse mortgage became “due and payable” in the 2015 federal fiscal year ended last September, triple the level of 2014, according to the U.S. Department of Housing and Urban Development.

In Massachusetts, there were 266 due and payables issued in 2015, also a tripling — plus 292 more through February, meaning that notices in the first five months of the new fiscal year have already surpassed the prior year’s total.

Scroll over the map to see "due and payable" notices sent to borrowers in Massachusetts in recent years.

Source: U.S. Department of Housing and Urban Development, federal fiscal years Massachusetts Office of Geographic Information Credit: Koby Levin / The Eye

Grim default outlook
The notices, which often start the foreclosure process, were sent to those behind on their property charges, like the Millers, and to homes where borrowers passed away or moved, which makes the mortgages due. HUD, whose Federal Housing Administration insures the mortgages, said it couldn’t break down the data further. HUD spokesman Brian Sullivan attributed the growth in due and payables to better record keeping.

“You are seeing a lot more aggressive foreclosures in this space," said Ira Rheingold, executive director of the Washington, D.C.-based National Association of Consumer Advocates. “It's a significantly growing problem.”

While the FHA is “super committed” to giving seniors who fall behind on their property charges every opportunity to remain in their homes, it realizes that “not every senior borrower” with older loans “will be able to avoid foreclosure,” HUD said in a statement.

Rules for new reverse mortgages, including assessments to make sure borrowers can pay property charges, were issued in the wake of the financial crisis to make the loans a sustainable way for seniors to age in place, the agency said.

The U.S. Department of Housing and Urban Development launched its reverse mortgage program in 1989, and seniors started to embrace the loan in the tens of thousands starting in 2005. But defaults and deceptive marketing have marred the program since its inception. The government has issued dozens of letters clarifying or amending the program.

Here’s a timeline of some of the major events.


But it could get worse for many seniors before it gets better. Last year, an actuarial report for HUD by the consulting firm Integrated Financial Engineering, estimated that 19.7 percent of reverse mortgages issued between 2009 and 2015 would suffer tax and insurance defaults in their lifetime.

Under a reverse mortgage, borrowers put up their homes as security and receive a loan either in a lump sum or in monthly payments and are allowed to defer payments on the debt until they die, move away or, as many have been reminded lately, fail to pay property charges. They appeal to seniors who may have substantial equity in their homes but are having trouble meeting living expenses.

Still a small fraction of the overall mortgage market, the issuance of new reverse mortgages is growing again, stoked by an aging U.S. population and ads like those featuring Henry Winkler, who played The Fonz on the old “Happy Days” sit-com.

“A reverse mortgage can literally change your retirement and your whole life,” Winkler says in an advertisement for One Reverse Mortgage, a unit of Detroit-based Quicken Loans. Best of all, he says, “You remain the owner of your home.”

Gregg Smith, president of One Reverse, praised the FHA for tightening up on the mortgages, which he said should be considered by more seniors as part of a their retirement plan.

HUD gets tough
Until 2011, most lenders didn’t foreclose on homeowners who didn’t pay their taxes and insurance. Instead, they would pay these property charges themselves, adding the debt to the total loan to be paid off later.

But five years ago, facing federal auditors’ criticism for losing millions on defaulting reverse mortgages, HUD notified lenders that they should foreclose when property charges weren’t paid, unless they could work out a plan for borrowers to pay them. Otherwise, the properties would no longer meet federal guidelines and FHA would refuse to insure the mortgages, leaving lenders at risk of financial loss. As these and other tightening-up directives took hold, due and payable notices have increased.

The non-profit Homeowner Options for Massachusetts Elders gets two or three calls a week from reverse mortgage holders afraid they may lose their homes, according to Len Raymond, who heads the Lowell-based agency.

Raymond said he had calls like this only occasionally three years back.

When the Millers took out the reverse mortgage about a decade ago, they were looking for financial help after Kenneth was laid off from a local defense company. They hoped the new loan would help them pay off their old mortgage, while avoiding monthly loan payments and getting some extra income to boot.

They say they realized only too late that the reverse would net them only a one-time lump sum in cash of $580 after paying off the old loan, money they quickly spent. With $532 in accrued interest added each month to the amount they owe on their loan, their debt has climbed to more than $115,000.

The Millers said they knew they were supposed to pay taxes and insurance but fell behind after several deaths in the family requiring burial costs. They worked with their loan servicer to come up with a payment plan, amended last year to cover unpaid taxes, their records indicate.

In January, the Millers learned their mortgage was transferred to another company, Reverse Mortgage Solutions Inc., which told them it didn’t know about any new payment plan. In January, Reverse Mortgage notified the Millers by letter that they had until mid-April to pay $10,137 in property charges or risk foreclosure and eviction.

Leslie Flynne, senior vice president of Reverse Mortgage Solutions, said that a reporter’s call prompted the Texas-based servicer to revisit the Miller’s case. She initially cautioned that the new, stricter FHA regulations hurt the couple’s ability to save their home.

But Kenneth Miller said on April 27 — eight days after Flynne first spoke to the Eye — that the company agreed to a new payment plan and a reduction in the debt to about $7,000. Miller said he was thrilled by the last-minute reprieve, but worries about others in similar situations.

Flynne said the lender received new information that gave the Millers another chance. Still, she said she expects more defaults and foreclosures as lenders follow FHA instructions to ensure that borrowers pay their bills.

“It's a great product when it works but when people choose to live in a home they can't afford anymore, we become the bad guy," she said. “We encourage people not to get as far in the hole and secondly to look for assistance early on.”

Housing advocates have also heard from many troubled survivors of borrowers. In 2014, several borrowers sued HUD seeking to protect widows as more of them were being forced out of their homes because they weren’t co-borrowers with their spouses and therefore not covered by the guarantee that they could stay until they died.

Walking on eggshells
The suit prompted HUD to issue  guidelines allowing lenders to turn over mortgages to FHA when a sole borrower dies — getting fully paid for the debt — and allowing aged widows to stay at home.

But some housing advocates say that lenders don’t have to initiate the process permitting that to happen, and not all of them do. Among non-borrowing spouses still troubled is Sandra Gardner, a 63-year-old widow in Wareham, Massachusetts, who said she turned over the deed of her two-bedroom home in 2008 to her husband Harry so he could take out a reverse mortgage to cover personal debts. Because she was younger than 62 at the time, she said, she couldn’t qualify for the loan herself — and didn’t understand that putting the loan in her husband’s name would put her at risk.

After he died of a heart attack in 2014, Gardner said she received notice from the lender that the loan was “due and payable” and she needs to pay the debt or move out. She said because her name is not on the mortgage, the lender will not even speak with her until she fixes the issue in probate court.

The original loan, which she said started at about $100,000 and has grown to more than $154,000, is a sum she can’t even fathom paying on her $1,400 monthly disability income.

Officials from Missouri-based Champion Mortgage, the servicer seeking to foreclose, did not respond to a written request for comment. Gardner’s attorney, Jane A. Sugarman, of South Coastal Counties Legal Services in Hyannis, first said she could not understand why the lender wasn’t working to help Gardner stay in the loan as allowed by HUD.

After reaching out to some new advocates in April, she said it is possible that Gardner may get a reprieve if new deliberations with HUD and the lender are successful. Gardner said hasn’t heard anything yet to calm her nerves — and wakes up every day worried this is the one someone will be holding a foreclosure auction on her lawn.

“I’m not a healthy person," she said. “I’m going to drop dead soon, why don’t you let me stay in my home so I can die in it."  

This story was edited by Gary Putka at Online production by Shawn Musgrave and Koby Levin.