The Federal Housing Administration this week issued new guidance to servicers on working with seniors who are in danger of defaulting on their reverse mortgages because they have fallen behind on paying property taxes and homeowners insurance.
"We understand that some senior citizens have not paid their taxes or insurance for some time and may be at risk of losing their homes," said FHA commissioner David Stevens.
The new mortgagee letter is "designed to establish a clear framework that protects both the homeowner and the lender who participate in our reverse mortgage program," Stevens said.
Mortgage Letter 2011-01 spells out requirements that lender/servicers must follow to report missed payments. There is also a process to follow on how servicers can collect unpaid taxes and insurance. FHA also drafted a model "delinquency" letter that lenders should use to notify seniors about missed payments.
Auditors from HUD's Inspector General office discovered last summer that four servicers were holding 13,000 FHA-insured Home Equity Conversion Mortgages where the borrowers had technically defaulted because of missed payments on taxes or insurance.
In many cases, servicers were making advances to cover these payments. The new guidance reminds servicers that there are limits on how much they can advance.
FHA also is encouraging HECM borrowers to work with their servicers and HUD-approved housing counselors to develop re-payment plans and avoid foreclosure.
The Department of Housing and Urban Development is providing $3 million to counseling agencies to specifically assist seniors who have fallen behind on their required payments.
Reverse mortgages relieve seniors from making mortgage payments, but they are still required to pay property taxes, homeowners and flood insurance.
