An estimated 30,000 reverse mortgages (~5% of the total) are now in technical default. Due to the sensitivity of the issue (and the potential for a Public Relations fiasco!), HUD recently issued guidance to all reverse mortgage lenders, urging them to avoid foreclosure at all cost. This development has important implications not only for those who are already in default, but for the entire pool of reverse mortgage borrowers.
Those of you who aren’t entirely familiar with reverse mortgages are probably wondering how it’s possible to default. After all, borrowers aren’t required to make monthly payments and are supposed to be protected from negative equity through their FHA insurance. What you may not know is that borrowers are still responsible for paying property taxes and hazard insurance premiums, as well as to continue maintaining the property, for as long as the reverse mortgage is outstanding.
Lenders might be inclined to look the other way when it comes to routine maintenance expenditures, but they can’t be afford to be lax with the payment of taxes and insurance premiums because it puts their collateral (the property) at risk. “HUD regulations allow lenders to make tax and insurance payments on behalf of their elderly clients from the borrower’s available mortgage funds. However, once those resources are exhausted, the lender must advance funds to protect FHA’s interest and obtain reimbursement from the borrower.” (In fact, since the reverse mortgages are insured, lenders don’t really have any incentive to avoid default, because they will ultimately be compensated by the FHA for any losses, but that is another issue).
Since doing nothing would risk endangering the solvency of the entire reverse mortgage program, the FHA earlier this year instructed lenders to begin calling loans for borrowers who were in technical default. However, the ensuing backlash forced the it to reverse course, and the current guidance represents a tacit admission that the earlier approach probably wasn’t well thought-out.
According to the January 2010 Mortgagee Letter, foreclosure is to be a last resort for HECM borrowers in default. Instead encouraged to work with HECM borrowers in default to make their loans current. The FHA has allocated $3 million to a handful of HUD-approved counseling agencies, which are supposed to assist with the effort. Given that an estimated 70% of delinquent loan balances are less than $5,000, the industry is optimistic that foreclosure can be avoided. Peter Bell, President of the National Reverse Mortgage Lenders Association told Reuters, “There might be charitable sources, or families might decide to step in and pay the bill. Even if cases to do to court, I doubt very many judges are going to let lenders throw seniors out of their homes over a $5,000 liability. Courts may impose some settlements.”
On the other hand, this represents more of a band-aid than a long-term solution. It’s possible that some borrowers simply forgot (or elected not) to pay their property taxes and hazard insurance premiums, and that they will now be galvanized into doing so. At the same time, I think that a certain number of technical defaults (~5% is actually below
national delinquency rate for conventional mortgages) is sadly to be expected. Unless the FHA has aspirations to turn the reverse mortgage into a charity program, it will have no choice but to call the loans (and effect foreclosure) upon those borrowers that lack the means to stay current. Besides given that the number of delinquent loans has risen nearly 200% over the last two years, this issue is unlikely to go away anytime soon.
In the mean time, those borrowers that were in technical default prior to January 1 will probably be given a free pass. “Lenders will be contacting all delinquent borrowers by the end of April to lay out options including establishing re-payment schedules, restructuring of loans or to offer assistance from a HUD-approved consumer counseling service.”
3 Responses to “HUD Issues Reverse Mortgage Default Guidance”
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February 6th, 2011 at 11:47 am
Idaho has a property tax program for homeowners aged 65 and older that reduces or eliminates property taxes if the homeowner’s adjusted gross income is less than $29,000. AGI includes health insurance premiums and prescription costs.
As a result, there are no property tax defaults for hecm (reverse mortgage) borrowers in the State of Idaho.
This Tax Exemption Program is legislated and administered by the Idaho State Tax Commission and implemented by the 44 County Assessors which comprise the State of Idaho. It should be looked at by legislatures and state tax commissions across the country.
Jim Spicka, former owner of Reverse Mortgages of Idaho, Inc, established in 1991 and is now affiliated with Metlife Bank Reverse Mortgages as a Reverse Mortgage Consultant.
His offices are in Boise, Idaho.
August 1st, 2011 at 12:41 pm
I am 67, mom passed 03/17/2010, I w..she/we took reverse out, on title for 25 years, quick claimed to mom in 11/07 she wanted to help me. My son, only child and I am also. was diagnosed with stage 4 cancer..Servicer is Financial Freedom, and contrary to what Peter Bell and other individual stated, “NO JUDGE WILL PUT A SENIOR OUT OF THEIR HOME”..well here I am Peter Bell and for one whole years have fought with Financial freedom to help me and they have denied, denied, denied, and when you finally could get an answer they placed the payoff so high in the heavens, that unless you were filthy rich, but then you wouldn’t have a REVERSE MORTGAGE, NO ONE WOULD HELP ME..NOW MY HOME AS OF TODAY HAS A CONFIRMED SALED DATE….I SPKIE WITH A SANY SATURDAY, SHE ADVISED ME SHE WOULD BE SENDING OUT E-MAILS TO PEOPLE ESPECIALLY PETER BELL TO STAY IN MY HOME OF 60 YEARS…THIS JUDGE MULROY NEVER KNEW ANYTHING ACCEPT WHAT CODILLIS LAW SAID, MY ATTORNEY WHO NEVER INTRODUCED HIMSELF TO ME COULDN’T HELP ME BECAUSE HE SCREWED UP..NEVER ATTEMPTED TO STOP THIS FORECLOSURE OR POSTPONE THE SALE DATE OF 07/29 DON’T KNOW WHAT HE DID. SENT ME A LETTER IN JULY, ADVISING ME TO GET A APPEAL ATTORNEY FOR APPELLITE JUDGE..WHERE AM I SUPPOSE TO COME UP WITH MONEY…FISH LAW GROUP WHO WAS COPNFIDENT THAT HE WOULD WIN,WANTED $1000 TO CONDUCT AN AUDIT, $750 EACH MONTH THEREAFTER. LAW FIRM OF METROPOLITAN GREATER CHICAGO PROFESSED THEY WOULD HANDLE THIS, NO MONEY REQUIRED, SENT A LETTER “WE CANNOT HANDLE THIS CASE, MARIA A TETA (MY MOTHER) HAS A PRIVATE REVERSE MORTGAGE, I KNOW NOTHING OF THISM, SO SORRY…THAT’S ALL I HAVE HEARD FOR A YEAR SORRY SORRY SORRY….THEY HAVE RUINED ME AND BURIED ME, NOW MY HEALTH IS AFFECTED DUE TO THE LEVEL OF STRESS THEY HAVE PUT ME UNDER, WILL PETER BELL PLEASE IN GOD’S NAME STEP IN AND HELP ME STOP THIS PLEASE IN GOD’S DNAME I BEG OF YOU..DON’T TURN ME AWAY LIKE EVERYONE ELSE HAS…HUD, FHA, HAMP (WANTED $756)HOPE, NEED I GO ON…NO ONE QUICKEN LOANAS WOULD NOT HELP, THEY WERE RUD E AND NOT NICE…..OH GOD PLEASE PLEASE HELP ME….I WILL BE 68 IN JANUARY…PLEASE..JUDGE MULROY WAS WRONG HE NEVER EVEN GAVE ME ACHANCE..I WAS NEVER INFORMED OF ANY COURT DATES, NOTHING……MY SON IS IN REMISSION WITH CANCER, I RAISED HIM IN THIS HOM, OT MARRIED, AND TWO PUGGS. I WAS CARETAKER FOR BOTHAND WORKED TWO JOBS, RESIGNING FROM MY PART TIME 21 YEARS WITH THE VILLAGE OF OAK PARK. PLEASE PETER BELL HELP ME…PHONE # 708/383-4899 OR 708/574-7068 WORK 7 pm-3am 7 DAYS A WEEK. 1235 N RIDGELAND AV OAK PARK IL
FINANCIAL FREEDOM LOAN #3000116823 DOCUMENT #10 CH-039543
MARIA A TETA MY MOTHER…I BURIED EVERYONE…60 YEARS IN THIS HOME AND THIS JUDGE FAVORED FINANCIAL FREEDOM…OVER A SENIOR..THE PAPERS SHOULD SHEAR OF THIS..ATTORNEY GENERAL AND STATESA ATTORNEY HAVE BEEN NOTIFIED AND ARE APPAULDED BUT NOT SURPRISED, SEEMS THIS GOES ON ALL THE TIME…SENIORS WILL DIE, SO FURTHER IT ALONG AND KICK THREM OUT AND THE STATE WILL THROW THEM IN SOME FILTHY HOME AND THERE
August 1st, 2011 at 12:46 pm
I am 67, mom passed 03/17/2010, I w..she/we took reverse out, on title for 25 years, quick claimed to mom in 11/07 she wanted to help me. My son, only child and I am also. was diagnosed with stage 4 cancer..Servicer is Financial Freedom, and contrary to what Peter Bell and other individual stated, “NO JUDGE WILL PUT A SENIOR OUT OF THEIR HOME”..well here I am Peter Bell and for one whole years have fought with Financial freedom to help me and they have denied, denied, denied, and when you finally could get an answer they placed the payoff so high in the heavens, that unless you were filthy rich, but then you wouldn’t have a REVERSE MORTGAGE, NO ONE WOULD HELP ME..NOW MY HOME AS OF TODAY HAS A CONFIRMED SALED DATE….I SPKIE WITH A SANY SATURDAY, SHE ADVISED ME SHE WOULD BE SENDING OUT E-MAILS TO PEOPLE ESPECIALLY PETER BELL TO STAY IN MY HOME OF 60 YEARS…THIS JUDGE MULROY NEVER KNEW ANYTHING ACCEPT WHAT CODILLIS LAW SAID, MY ATTORNEY WHO NEVER INTRODUCED HIMSELF TO ME COULDN’T HELP ME BECAUSE HE SCREWED UP..NEVER ATTEMPTED TO STOP THIS FORECLOSURE OR POSTPONE THE SALE DATE OF 07/29 DON’T KNOW WHAT HE DID. SENT ME A LETTER IN JULY, ADVISING ME TO GET A APPEAL ATTORNEY FOR APPELLITE JUDGE..WHERE AM I SUPPOSE TO COME UP WITH MONEY…FISH LAW GROUP WHO WAS COPNFIDENT THAT HE WOULD WIN,WANTED $1000 TO CONDUCT AN AUDIT, $750 EACH MONTH THEREAFTER. LAW FIRM OF METROPOLITAN GREATER CHICAGO PROFESSED THEY WOULD HANDLE THIS, NO MONEY REQUIRED, SENT A LETTER “WE CANNOT HANDLE THIS CASE, MARIA A TETA (MY MOTHER) HAS A PRIVATE REVERSE MORTGAGE, I KNOW NOTHING OF THISM, SO SORRY…THAT’S ALL I HAVE HEARD FOR A YEAR SORRY SORRY SORRY….THEY HAVE RUINED ME AND BURIED ME, NOW MY HEALTH IS AFFECTED DUE TO THE LEVEL OF STRESS THEY HAVE PUT ME UNDER, WILL PETER BELL PLEASE IN GOD’S NAME STEP IN AND HELP ME STOP THIS PLEASE IN GOD’S DNAME I BEG OF YOU..DON’T TURN ME AWAY LIKE EVERYONE ELSE HAS…HUD, FHA, HAMP (WANTED $756)HOPE, NEED I GO ON…NO ONE QUICKEN LOANAS WOULD NOT HELP, THEY WERE RUD E AND NOT NICE…..OH GOD PLEASE PLEASE HELP ME….I WILL BE 68 IN JANUARY…PLEASE..JUDGE MULROY WAS WRONG HE NEVER EVEN GAVE ME ACHANCE..I WAS NEVER INFORMED OF ANY COURT DATES, NOTHING……MY SON IS IN REMISSION WITH CANCER, I RAISED HIM IN THIS HOM, OT MARRIED, AND TWO PUGGS. I WAS CARETAKER FOR BOTHAND WORKED TWO JOBS, RESIGNING FROM MY PART TIME 21 YEARS WITH THE VILLAGE OF OAK PARK. PLEASE PETER BELL HELP ME…PHONE # 708/383-4899 OR 708/574-7068 WORK 7 pm-3am 7 DAYS A WEEK. 1235 N RIDGELAND AV OAK PARK IL
FINANCIAL FREEDOM LOAN #3000116823 DOCUMENT #10 CH-039543
MARIA A TETA MY MOTHER…I BURIED EVERYONE…60 YEARS IN THIS HOME AND THIS JUDGE FAVORED FINANCIAL FREEDOM…OVER A SENIOR..THE PAPERS SHOULD SHEAR OF THIS..ATTORNEY GENERAL AND STATESA ATTORNEY HAVE BEEN NOTIFIED AND ARE APPAULDED BUT NOT SURPRISED, SEEMS THIS GOES ON ALL THE TIME…SENIORS WILL DIE, SO FURTHER IT ALONG AND KICK THEM OUT AND THE STATE WILL THROW THEM IN SOME FILTHY HOME VERY SAD OUR SOCIETY AND OUR LAWS NEED TO BE CHANGED, WE SENIORS ARE NOT TREATED VERY KINDLY, WE WORKED VERY HARD, SOME OF US HARDER THEN MOST, AND TO BE TREATED WITH NO RESPECT JUST TOSS THEM OUT…TAKE THEIR HOME LET THEM FEND FOR THEMSELVES AND ALLOW JUDGE MULROY TO HURT ANOTHER SENIOR AND LOOSE THEIR PLACE IN SOCIETY AFTER ALL THEY ARE “OLD”.