The Federal Housing Administration's guidance regarding reverse mortgage borrowers who are in default because of nonpayment of taxes and/or insurance is a good "first giant step" towards dealing with the problem, an executive at a company that specializes in servicing Home Equity Conversion Mortgages declared. The guidance includes the option of refinancing these people into a new loan.
Marc Helm, the president and chief operating officer of Reverse Mortgage Solutions, Houston, said the mortgagee letter puts some parameters about what FHA and the Department of Housing and Urban Development want done in these situations, which until now had been a gray area.
The letter addresses situations where the servicer has had to make T&I payments on behalf of the borrower. Under current policy, they need to seek reimbursement from the borrower.
Within 30 days of the borrower missing a payment on taxes or insurance, the lender must notify the borrower he or she is not in compliance with the loan terms and must offer loss mitigation options to help the borrower correct the situation.
These options include: creating a "realistic" repayment plan; contacting a counseling agency for help; or if there is sufficient equity to deal with the delinquency, refinance the borrower into a new HECM.
An area that concerns Helm is the guidelines for the repayment plan, which puts a 24-month limit on arrears over $5,000.
"If somebody owes $10,000 worth of taxes, if they weren't able to pay it, I don't think they are going to be able to pay it back on a 24-month repayment plan," he said.
For a particularly large advance, he would like to see an option that would allow HUD to grant a waiver to go over the 24-month time frame for a repayment plan.
A repayment plan would only work if the borrower were able to pay the next year's T&I when it is due.
Part of the problem includes that when the senior is relieved the burden of making monthly principal and interest payments, they might think they don't have to make the T&I payments as well. RMS has made a number of foreclosures where the borrower has not been responsive to requests to pay the T&I arrears.
But the refi option is one of the better tools HUD has put in place for these borrowers, he noted. A number of the loans in default status are older and may have gained usable equity because of the increase in the HECM loan limits. RMS is now actively looking to see if they can refinance borrowers out of a T&I default.
The mortgagee letter also includes a model letter reverse mortgage servicers can send to a delinquent borrower. The letter has some "pretty stiff wording," Helm said, but overall, he added he feels positive about what HUD has put out. RMS is looking at some ideas of its own to help these borrowers out.
In fact, RMS had its own letter it sent to borrowers, and he recounted at least one case where it was criticized by a mortgage broker for its tenor. But Helm said he feels vindicated because the HUD letter is even tougher.
The counseling provision changes the onus from the lender saying the borrower could lose their house for failure to pay T&I. It is a third party that is telling them there is the possibility of foreclosure, Helm said, noting that in an era where much of the conversation regarding defaulted forward mortgages has been on foreclosure delays, he is not sure the reverse mortgage borrower is taking the servicer seriously regarding the fact they might have to foreclose because a small amount of taxes are owed.
One of the roles of the counselor, according to HUD, is to transition the borrower to alternative housing if keeping the home is no longer an option.
HUD is providing $3 million for counseling agencies to work with reverse mortgage borrowers facing default.
The agency also put "heavy duty reporting requirements" so it will monitor what servicers are doing and not doing, he noted.
"As we work through this mortgagee letter and all the pieces in there, I think we can give HUD some very solid feedback," Helm stated. HUD spent a lot of time speaking with the industry to put this together and he called this a good starting point. But, he continued, is this enough to make a difference, which is something only time can tell.
"All of us in the industry want all of this to work, so any tools that HUD can give us to work with the borrowers a little bit better to have them stay in their homes, that is the end goal here.
"The end goal here is not to foreclose people, it is to keep people in their houses," Helm said.
