Clampdown looming on reverse mortgages

Updated 07 December 2012

Clampdown looming on reverse mortgages

CHICAGO: The US federal government is proposing to make big changes to its reverse mortgage program early next year that should make the loans safer for seniors who use them to tap home equity.
Shaun Donovan, secretary of the US Department of Housing and Urban Development (HUD), which regulates these loans, will detail policy options t h at would create more conservative lending standards in testimony later this week before the Senate Committee on Banking, Housing and Urban Affairs.
Change is needed. Reverse mortgages can serve as financial lifelines by helping seniors leverage their equity without selling their homes. But the private loan industry has shifted in recent years toward encouraging large up-front lump sums rather than smaller lines of credit. These are more risky for borrowers as well as for the federal government, which insures them through the Federal Housing Administration (FHA) insurance fund.
Unlike a traditional 30-year mortgage, where you make monthly payments that increase your equity, a reverse mortgage pays out the equity already in your home as cash; your debt level rises and equity decreases. The loans are available only to homeowners age 62 and above.
But the reverse loan market has faced growing problems in recent years — the result of sinking post-crash home values and the industry's shift toward riskier loan structures. Lending through the federally administered Home Equity Conversion Mortgage (HECM) program was down 25 percent in the fiscal 2012 year ended Sept. 30. Just 54,591 loans were issued — the third straight year of falling loan volume and far below the peak year of 2009, when 115,000 loans were originated.
Reverse mortgages have come under increased scrutiny from federal regulators and loan underwriters. A critical study released earlier this year by the federal Consumer Financial Protection Bureau found that a growing number of outstanding loans are at risk of default. As of June this year, 9.8 percent of all active HECM loans were delinquent, according to HUD, which regulates the loans.
The most popular reverse loan is the HECM. Repayment typically is triggered when a homeowner dies or moves out permanently, and is typically funded through sale of the home. If the balance on an HECM is higher than the value of the home, the FHA makes up the difference through its Mutual Mortgage Insurance fund (MMI). The fund also is on the hook if a loan goes into default.
Reverse mortgage borrowers are not required to make monthly loan payments, but it is still possible to default. Loan terms typically require borrowers to continue paying property taxes, hazard insurance and any required maintenance on their property.
The market has swung dramatically in recent years toward loans that give borrowers large lump-sum payouts that carry high fixed rates of interest rather than annuity-style payments or lines of credit that carry lower adjustable rates. The proceeds tend to be spent in the early years of the loan, leaving households without sufficient cash flow down the road to keep up on required payments on taxes and home insurance. These loans are up to four times more likely to default than more conservative loans, according to HUD.
The MMI program is under financial stress because of the wider foreclosure crisis, but HECM defaults are generating losses at a much higher rate than traditional forward mortgages covered by the fund, according to HUD data.
HUD will pursue one of two avenues to address the problem, according to Charles Coulter, deputy assistant secretary of the FHA.
Its preferred approach, he says, is to get emergency authority from Congress to cap up-front loan draws at the greater of a fixed percent or "mandatory obligations" associated with the reverse loan — closing costs and the retirement of mortgage liens or federal debt. At the same time, new safeguards would be added to ensure that borrowers are able to meet future tax, insurance and property maintenance obligations. These would include an assessment of creditworthiness and possibly an escrow requirement for taxes and insurance.
— The writer is a Reuters columnist.
The opinions expressed are his own.

If Congress does not grant that authority, HUD will use its existing regulatory authority to discontinue fixed-rate loans in the standard HECM program, which currently allows homeowners to borrow up to $ 625,500. Instead, fixed-rate loans would be available only through the HECM Saver program, which has lower loan limits and fees.
In either case, the industry anticipates that borrowers will see changes in loan choices by the first or second quarter next year, according to Peter Bell, president of the National Reverse Mortgage Lenders Association (NRMLA).
HUD is aiming to push the HECM market back toward loans that provide flexible lines of credit at adjustable interest rates.
"Seniors will need to rely on their homes as one of the mechanisms for sustaining themselves during retirement," Coulter said.
"Reverse mortgages can help seniors age in place in cases where they don't have access to other liquid capital. We're just trying to get this program to operate more consistently with that statement than it is today."
HUD Secretary Donovan isdue to testify about the health of the MMI fund before the Senate Banking Committee and is expected to discuss the proposed HECM changes.
Reverse mortgage lenders will welcome the changes, according to the NRMLA's Bell.
"I think these are healthy changes that will address a handful of concerns that keep arising," Bell said. "There have been concerns that fixed-rate, full-draw loans are being taken out by people who should do otherwise. This will put a check and balance on that, and help the FHA with the mix of loans it's insuring from a risk standpoint."
— The writer is a Reuters columnist. The opinions expressed are his own.

Telegram Russia ban spurs privacy debate

Updated 21 April 2018

Telegram Russia ban spurs privacy debate

  • Telegram has always attracted a mix of criticism and respect for its use of encryption to ensure its messages between users remain confidential.
  • A Moscow court decided last week to block the app in Russia because it refused to hand over encryption keys to authorities.

LONDON: Telegram, the messaging app that re-located from Russia to Dubai, has again fallen foul of the authorities in its mother country. So what is it about the social media platform that simultaneously has governments worldwide so concerned and freedom of speech advocates so agitated?
Telegram has always attracted a mix of criticism and respect for its use of encryption to ensure its messages between users remain confidential.
A Moscow court decided last week to block the app in Russia because it refused to hand over encryption keys to authorities — sparking fresh controversy around the app, which has previously been banned in countries such as Iran, Afghanistan and Indonesia.
Telegram has been under close scrutiny in Russia since legislation was passed in mid-2016 that required communication companies to hand over encryption keys to the Federal Security Service (FSB), if requested.
There was also a move to place companies on a “register of information distributors,” which requires firms to store user online communications for a set period of time and hand over data to the authorities when needed.


Some of Russia’s large social networks are reportedly on the register and Telegram was pressurized to register in mid-2017. Other Western social media companies such as WhatsApp are not listed. WhatsApp did not immediately respond to a request for comment.
Weeks after joining the register, Telegram refused to agree to FSB requests for encryption keys, resulting in the Russian media watchdog Roskomnadzor seeking court approval this month to block the app.
On the day of the court decision, Telegram’s founder Pavel Durov tweeted: “Privacy is not for sale, and human rights should not be compromised out of fear or greed.” The company has also said it is technically impossible to transfer encryption keys.
It was not the Russian entrepreneur Durov’s first run-in with Russian authorities. Telegram — which was launched in 2013 — originally had its development team based in St. Petersburg, but had to leave the country due to local IT regulations. It is currently based in Dubai.
The messaging app prides itself in being the most secure and independent form of instant messaging that respects the need for privacy. Its “secret chats” option makes use of end-to-end encryption that ensures only users can read them. Messages cannot be forwarded and you can order messages to “self-destruct” within a set amount of time. It can also alert users if the recipient of the message takes a screenshot of the correspondence. So-called Telegram “Channels” can be used to broadcast public messages to a large audiences.
While WhatsApp — which is owned by Facebook — also provides end-to-end encryption, Telegram differentiates itself with claims it is faster and more secure.
Damir Gainutdinov is a legal analyst at Russian human rights group Agora, which represented Telegram in court. He has headed up its project on the defense of online freedom in Russia since 2010.
He told Arab News that the block placed on Russia was more of a power-play by the authorities.
“I think that Russian authorities believe that Telegram is a threat because they cannot control it.
“But I wouldn’t say that it is really the biggest threat. The attack on Telegram is more about showing that they can block any global service if they want,” he said.
Russia’s government has argued that the app helps to enable terrorist attacks in the country, saying that access to encrypted messages is a national security issue.
The FSB said a suicide bomber who killed 15 people on a St. Petersburg subway in April last year had used Telegram to plan the attack.
Voices from outside Russia have also criticized Telegram for not doing enough to clamp down on terrorists using the app. “Terrorists and extremist groups such as ISIS (Daesh) use encrypted applications like Telegram because it allows them to recruit new members, fundraise, incite to violence, and even coordinate terrorist activity without the threat of being discovered,” said executive director David Ibsen at the US-based non-government organization Counter-Extremism Project.
“ISIS also created public channels on Telegram to broadcast pro-ISIS news updates and disseminate other propaganda materials,” he told Arab News. Durov has been quoted as saying at a conference in 2015 that the right to privacy is more important to the company than “our fear of bad things happening, like terrorism.” Following the Paris attacks in 2015, Telegram did revise its policy on its public channels, but it has refused to take down private Daesh chats, according to Ibsen.
Social media sites are coming under increasing pressure from authorities worldwide to do more to limit the promotion of extremism online.
In a statement to Arab News, Twitter said it had permanently suspended 274,460 sites in the second half of last year — down more than 8 percent on the previous reporting period.
While Telegram is far from the only social media app to be criticized for its counter-terrorism policies, it is seen by some as the more reluctant player in the battle against online extremism. “Social media companies remove content regularly that violates their stated terms of service, and some of this includes extremist and terrorist videos, images and other propaganda,” said Ibsen. “However, despite the availability of technology that can identify and permanently prevent prohibited materials from being re-uploaded, the biggest social media platforms are not taking this vitally important step,” he said.
“Telegram has become a refuge app from the moment the preferred apps (Twitter in particular) started to clamp down on extremist content,” said Rik Coolsaet, a professor of international relations at Ghent University in Belgium who has written extensively on counter-terrorism efforts. “Its encryption offered a secure environment for terrorist recruiters and groomers, but at the same time limited their propaganda outreach, since it is more difficult to access. For that reason, Twitter remains their preferred app,” he added.
Russia is not the only country clamping down on Telegram. Iran restricted certain channels in December last year during the protests and there have been recent threats that restrictions could be reimposed. A estimated 40 million Iranians use Telegram’s channels and messaging services.
“In the case of Russia and Iran, the Telegram crackdown has much more to do with controlling the lives of its citizens than it does with preventing terrorist activity,” said Ibsen.
Telegram did not respond to Arab News’ request for comment.


We talk to leading world cyber terrorism expert Chris Sampson, co-author of “Hacking ISIS: How to Destroy the Cyber Jihad” and an analyst with the Terror Asymmetrics Project

Why are governments so worried about Telegram?
Telegram was launched as an encrypted messaging app. This meant that government agencies were less likely to be able to intercept messages passing across the Internet and read private conversations. However, in September 2015, Telegram also created an option for channels, which act like chat groups. This allowed like-minded individuals to essentially host a chat room. Unless the channel was set to public you couldn’t read what was discussed without being given an invitation link. Groups like ISIS began using these channels to share propaganda and information. Other groups use Telegram in much the same manner. Non-violent resistance groups around the world would also use the messaging app and channels to communicate so authorities in the countries they fear would be less likely to intercept their discussions.

Will clamping down on social media apps be effective?
As governments crack down and ban apps, others will rise and replace them with new features and focus on security from outside eyes. They will operate either within the legal construct or outside of it depending on the countries they seek to circumvent. Since laws around the world differ dramatically, what is legal in one country could be illegal in another. We’ve seen this already happen as countries sought to ban use of Telegram, WhatsApp or even Twitter. Inevitably the access to the technology remains the same and users find a way to use both encrypted messaging and social media platforms.

Does Russia’s action set a precedent?
Countries such as Indonesia, Iran, Afghanistan and others have banned Telegram. Brazil banned WhatsApp around the timing of the World Cup only to lift the ban. Such bans are largely ineffective because the majority of users are engaged in lawful communications yet want their privacy, those engaged in illegal and potentially violent activities make up a fraction of the userbase. The better solution is to know where nefarious users are lurking on the web and keep track of them in observable spaces. Banning the public’s access to messaging apps will always fail. Telegram and similar companies should deny government agencies the keys to encryption unless there is a reason given that would justify unlocking communications. If the governments are able to seize a phone and unlock it, they’ll already have access to a suspect’s communication if they haven’t erased the data.



Telegram, founded by Russian entrepreneur Pavel Durov in 2013, is an app that enables encrypted messaging, together with “self-destruct” messages. It is used by 200 million people worldwide. Authorities in a number of countries criticized it for providing secure communications channels for terrorists and criminals.