Tuesday, March 7, 2017

A Reverse Mortgage Smear Piece of Mnuchin

The New Jersey Star-Ledger ran a piece about a reverse mortgage gone wrong. A reverse mortgage is a government-backed loan that allows elderly people to turn equity in their homes into monthly cash payments, to be paid back with accumulated interest when the home is either sold or the owner dies. The owner must maintain insurance and property taxes on the home, or slip into default.


That’s what happened regarding the Star-Ledger article, 90-year-old woman foreclosed, evicted from home of over 60 years. The woman, Gloria Turano—even now an able-bodied woman of sound mind—fell years behind on insurance and property taxes, so the mortgage holder forecloses on the house.


The bank that originated the loan went defunct and was taken over by the government in 2008. The remaining assets were eventually bought by a private investment group, which completed the foreclosure on behalf of Fannie Mae, the government sponsored enterprise, after paying off the back taxes. Afterwards, Fannie Mae bought the house for $100 at a sheriff's sale, evicted the woman, and resold the house. The entire saga spanned 2007, when the owner fell behind on payments, to 2016, when a judge approved the eviction.


The article reads like a typical human interest story—until you get to the real purpose of the article near the end. It turns out that Steven Mnuchin, the current Secretary of the Treasury, was part of the investor group that bought the original banks remaining assets, which included Turano’s Fannie Mae-owned mortgage. After Mnuchin left, the bank was investigated by HUD for how it carried out foreclosures under rules that HUD itself set. (The article doesn’t report that second part.) The investigation was cited through a report by Bloomberg News.


Whatever the investigation yields, what that has to do with this woman’s plight is lost on me. The only connection I can gather between this woman and Mnuchin comes through her son Rob Turano, who declared himself “angry” about “the investigation and Mnuchin's ascension to government leader.” Mnuchin’s group, remember, bought bank assets from the government, and was hired by the government to carry out its foreclosures under the government’s own rules. The reverse mortgage program is a government program, after all. Rob Turano is quoted as saying, referring to a house sale the family held:


"The stark contrast of this weekend for us is this: as billionaire appointments and their friends descend on Washington to celebrate their victory, people will traipse through our family home buying - at a discount - my family's 65 years of life," Rob said then.


The article also took a slap at the salesman who sold Turano the mortgage in 2004. The salesman assured Turano that if money became tight, she could always “refinance the deal because her house would ‘only go up in value’.”


The question is, would this article have been written if Trump hadn’t won the election and Mnuchin hadn’t been appointed by Trump?


I left these comments:


So, Gloria Turano breached the mortgage contract, and her home was foreclosed on. That’s not the whole story—but not in the way this article wants us to believe.


In a sense, Gloria Turano is a victim, but not of the mortgage salesman or Minuchin. The idea that houses “only go up in value” is an American legend that dates back generations. My father told me the exact same thing when I got engaged in 1970. I’ve been a homeowner since 1972. This mantra, which stood right in line behind death and taxes was fostered by decades of government policies that artificially prop up homeownership. Almost everybody believed it. Why would this salesman believe otherwise? Why wouldn’t Turano? Hadn’t it been true for decades, causing banks to be a little more generous in their lending and borrowers to take on extra risk? It was true, “It wasn’t supposed to end this way.”


And by 2004, this end seemed less likely than ever. Everybody—lenders, borrowers, regulators, politicians—believed in housing like a religion.  By 2004, the federally engineered mother of all housing bubbles was well under way. The 1995-2009 housing boom, bust, financial crisis, and Great Recession—a crisis bred, driven, and coercively fostered by Washington’s bipartisan “affordable housing” crusade—would deprive Turano of the age-old “housing will only go up in value” refinance bailout.  

That caveat aside, what we have here is a clear case of loan default followed by a perfectly reasonable foreclosure. What actually stands out in this article is the exploitation of an old woman’s troubles, a play on readers’ understandable sympathy, and an unhealthy appeal to that darkest of human emotions, Envy—for the purpose of smearing an honorable man for the crime of serving in the Trump Administration. What could have been an educational warning on reverse-mortgages and a financial lesson that nothing ever “always goes up” was in fact nothing more that a shameful political hit piece.

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