The U.S. Housing and Urban Development agency released new guidance this week regarding how reverse mortgage lenders can protect themselves and their borrowers against growing defaults resulting from non-payments of property tax and insurance.
Earlier this week, Housing and Urban Development approved counseling agencies, as required by HUD to consult with potential reverse mortgage borrowers before the closing of the loan, received a letter from Assistant Secretary for Housing, David H. Stevens. The letter documents new guidance and preventative measures that attempt to manage an estimated 13,000 reverse mortgage properties currently in default due to non-payment of property tax and insurance.
Borrowers of reverse mortgages are required to keep current with the federal, state, and local taxes and homeowners insurance and are otherwise required to maintain the property the loan is secured by regularly. In his letter dated January 4th, 2011, Secretary Stevens asserts than an alarming number of reverse mortgage borrowers are in default on their tax or insurance payments and thus face the potential of losing their home.
In an effort to mitigate and eliminate the potential for foreclosure due to non-compliance with the Federal Housing Administration mortgage requirements, the letter calls for mortgage lenders to report current accounts and borrowers who are in default, including those that are on a repayment plan or differed status, to HUD. Going forward, lenders will be required to report delinquencies as they arise. A foreclosure of a borrower"s home due to nonpayment of taxes and insurance remains a last resort that should be considered only when all other options and earnest attempts to collect on the loan are exhausted, the letter said.
Many times, borrowers of reverse mortgages need help covering the property"s tax and insurance bills, and the lender is permitted to do so by drawing from the borrowers" principal limits. When those limits have been depleted, as is happening now on a larger scale, the lender must continue to make those payments pursuant to regulations and attempt to collect the balance from the borrower. Therefore, it"s always in the lender"s best interest to help borrowers establish a plan to get the mortgage and property back in compliance with the FHA and get those payments current.
Secretary Sevens" letter cites a number of valuable plan-of-actions to help lenders get borrowers back in compliance, like establishing a realistic repayment plan that includes a sample monthly pay schedule, free HUD-approved assistance to explore viable alternatives and solutions, and perhaps even the notion of refinancing the delinquent reverse mortgage.
HUD is on track to supply a $3 million fund to help housing counseling agencies tackle this issue. Counselors will help elderly homeowners work with their servicer to create repayment plans that eliminate the outstanding balance, not prolong it. If keeping the home is no longer an option, the counselors will help the borrower transition to alternative housing.
Lastly, the letter calls for lenders to send all letters to borrowers with loans that are delinquent as of the date of the mortgagee letter. The deadline for reverse mortgage lenders to get those notices out is February 28, 2011.
For the reverse mortgage industry, HUD"s new guidance is suited to benefit both lenders and borrowers who participate in a reverse mortgage. The greater regulatory oversight will protect both parties as reverse mortgages continue their reign of popularity among underfunded and unprepared retiring seniors. http://www.legacyreversemortgage.com/reverse-mortgage-calculator