HUD Reverse Mortgage Foreclosures: Will They or Won’t They?

March 22nd, 2010 | by Neil Morse Published in FHA, News, Reverse Mortgage | 16 Comments

[Update]

Reports have circulated that HUD has given lenders approval to foreclose on seniors whose properties have gone into “technical” or other default, with specific instructions coming sometime this spring. “We are aware of HUD’s decision” to allow the foreclosures, one prominent originator told RMD, after much speculative discussion among reverse mortgage professionals at a recent industry conclave.

There is broad agreement that such foreclosures – typically for failure to pay tax and insurance bills – would bring much negative and unwanted scrutiny not only upon individual companies but the industry as a whole. It is “a sensitive matter that is being discussed by a working group of servicers and HUD,” said a high-level industry figure.

Meanwhile, a HUD spokesman tells RMD there has been no official agency pronouncement on the subject, adding: “We can assure you that it is now and has always been FHA’s goal to keep seniors in their homes.”

“No one wants to foreclose on a senior,” said Sherry Apanay, senior vice-president, Generation Mortgage Company, repeating HUD’s official position. “However, servicers are now in a position where [other] options are no longer available. But,” she quickly asks: “How many seniors has a reverse mortgage helped save from a tax sale or foreclosure? I hope we see some balanced reporting” on the subject, she concludes.

Another possible indicator of a coming policy shift on foreclosures is word that counseling agencies are already creating resources for seniors who may ultimately require alternate, affordable rental housing. Representatives of one, major counseling group could not be reached for further comment.

Written by Neil Morse

Note: a previous version of this article read that ”HUD has made the decision to not allow servicers to add to the borrower’s balance for unpaid taxes or insurance.” This has not been decided, we apologize for the confusion. We are stil investigating and will post another update.

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The_Critic

Throwing originators under the bus seems to be a current and popular sport among some well recognized servicers and lender management. Unless we are going to have borrowers spell out in their own handwriting (as witnessed by two unrelated third parties, notarized by yet another individual, and embossed with some verifiable form of borrower DNA) that they are responsible to pay taxes and insurance, what else can be done?

Yeah, marketing in prior years did not generally address taxes and insurance but isn’t that as much an issue of lender marketing compliance than anything else? Yes, some originators have failed to discuss taxes and insurance through ignorance, mistake, and unfortunately intent but where was counseling?

The blame game always intensifies when market conditions produce less than stellar performance in some segment. Let’s put the blame where it squarely belongs; home appreciation is awful. Many seniors picture their homes as being under water upon HECM termination. Since that is the case and “technical” covenant violations do not result in any significant penalty to the borrower, it would only be natural to expect to see an increase in borrowers not making such payments in this environment and declaring with great sincerity that no one told them about the necessity of making such payments..

Throwing others under the bus is a game of children. It is sad to see it proliferating especially when we all agree this issue is very serious and will need a strong reaction to turn the trend. Some think originators do not care. The truth is we care very much. The negativity this will generate among seniors cannot be underestimated. We all lose under this scenario.

The real question is why has there been so much procrastination and secrecy in dealing with the issue which some have been labeling for years as “the HECM family’s little dirty secret.” Some have blamed HUD for not providing direction. But the truth is the ostrich method of dealing with festering and growing issues does not produce good results. Let’s hope this problem is actually dealt with now or else we will be dealing with it when things are even worse.
RyanLaRose

Critic –

I agree that the blame game gets us nowhere…as there is not one specific party that has caused the situation that we, as an industry, now find ourselves in.

It is not a desirable position, as a servicer, to be faced with the possibility of having to evict a senior from their home.

From an economic standpoint, I understand that this industry cannot allow the situation to continue on indefinitely without some sort of mitigation plan or process in place. However, from a personal perspective, it is challenging to know that the senior that gets evicted from their home for not paying one tax bill may have no place else to go.

I can tell you from personal experience that there has been no procrastination on this issue in the servicing community over the five years I have been in the industry. There have been many, many conversations, meetings, etc. with HUD, servicers, NRMLA, and investors all at the table together over the years to try to come up with a long-term solution. However, this issue – while very simple on the surface to some – has far reaching impacts for senior borrowers and the reputation of our industry.

I am hopeful that the industry will see a mortgagee letter published by HUD in the near future that will provide some additional framework for servicers.
reversemaniac

This has not been a “dirty little secret”, but rather it is a very complicated issue, compounded by the fact that no one wants to have their name connected to the first foreclosure…or any HECM foreclosure for that matter.

Why else would it have been debated for over 10 years without resolution?

I have said this numerous times, who amongst us wants to have a headline about YOUR company read, “ABC Lender evicts 94 yr old widow, making her homeless.”

I am not disputing the facts, but one single-most important fact that everyone seems to brush by is that the Obama administration is spending tens of billions of dollars trying to keep people in their homes. Why then when it comes to HECMs, HUD is so willing to throw the seniors under the bus? I just don't get this disconnect.

Isn't there something other than foreclosing and eventually evicting these folks from their homes that could be done?

It seems the first line of logic is that the senior knew their responsibilities so foreclose, and if this whole process continues down it's present path, I believe it won't take long for us to be labeled as scumbags taking unfair advantage of the elderly!
Anonymous

When they begin the foreclosures (and by rights they should) and the mainstream media weighs in, you will want to be out of the reverse mortgage business. “Under the bus” will be only the start, reviled for certain.
http://www.legacyreversemortgage.com/ LegacyJim

I can’t for the life of me figure out how we can justify spending billions on loan modifications but when the HECM program needs a 1/4 billion subsidy after years of great performance, we can’t seem to get it. And it seems one of the reasons is that lawmakers are unsure of the program and want to protect seniors… so instead we cut the program’s benefits and raise its costs???
Admin

Note: a previous version of this article read that ”HUD has made the decision to not allow servicers to add to the borrower’s balance for unpaid taxes or insurance.” This has not been decided, we apologize for the confusion.
Newbie to Reverse

I want to let The_Critic know that when I read the articles in Reverse Mortgage Daily, I immediately scroll down to look for his/her comments and opinions. I have probably learned more about the Reverse Mortgage Industry from him/her than any of my current mentors or educators.
Thank You!
The_Critic

Ryan,

You are right we all agree. We all know the real impact is not on the surface but relatively intense meetings that have extended over five years (or ten or more) without any significant action which mitigates the situation seem less than fruitful. Discussing what an apparently deaf Administration has done on cash for clunkers and other programs also seems less than fruitful. Why weren’t these ideas explored with more friendly adminstrations? The problem is we are past that now.

Here is where good leadership steps in and acts. Committees rarely take decisive action. Leadership is needed not more committee meetings. Any forward thinking mortgagee would have realized that this was a potential problem years ago — and that is exactly what happened.

The intensity of the problem is festering just below the surface and indicates that something is ready to explode. With closed end HECMs dominating new originations, home appreciation dragging, and borrower attitude about their homes being under water at HECM termination increasing, how can any forward thinker believe further delays are a wise decision? In fact such dithering is imprudent.

The Reversemaniac is right; who wants to be first. But rather than taking no action why not make the appropriate appeal to Congress and the Administration along with moving in other directions. If the situation is still unresolved on September 23rd, strong leadership would do something decisive. For example, why not get a joint statement out of HUD, NRMLA, and the top lenders and servicers in the country that due to the situation here is the result. Have each of these affected signatories put a minimum of 100 of these loans into foreclosure at the same time and make formal announcements and press releases on October 1 naming the signatories and the action taken if no better resolution has been achieved on September 23rd.

The issue is not whether all of the avenues have been addressed, etc. The real issue is that inaction has caused and is causing a far worse situation to fester until we have an explosion all of us will regret. The point is by October 1 make the hard decision and get the machinery in operation which mechanically will resolve the issue. That is what good leadership does.

By the way, Ryan, these comments were not directed at you personally. Rather they are directed to all those who should be in the lead to make this decision for the industry. Your help and insight are greatly appreciated.
hecmadvocate

In Oregon seniors can participate in the Senior Property Tax Deferral Program. This allows the State to pay the taxes to the Co. and place a lien on the property that gets repaid (with 6% simple interest) when the home sells or refinances in the future. Why can't this be done in all states?
The_Critic

Thank you!
jsmaldone

This problem will exist forever and a day. Their is no simple solution.

In some cases where the borrower has a line of credit, the T&I can be taken out to pay a particular years worth. When that occurs, serious counseling must be done with the borrower to try and avoid future occurrences of this nature. Those who have no reserves to go to and can't pay their taxes and insurance are in deep trouble.

However, some states do have a senior aid program and tax relief program that a senior can resort to. Some seniors will have to be foreclosed on. Unless a hardship appropriation bill would be passed specifically for seniors to either partially fund or fully fund the T&I for those that would qualify as a hardship case.

The Critic is right and others who have commented on this issue made valid points. The plain old facts are, this is a problem that will not be fixed any time soon. We can only emphasize to the senior how important it is for them to budget monthly and set aside the money for their taxes and insurance when it comes due. I think we have to be good councilors and drive this issue home to the borrower.

John A. Smaldone
http://www.timlinger.com timlinger

As I understand it FHA does NOT allow the “Property Tax Deferral Program” to be used with a HECM. I also believe that MOST states DO have the PTDP for seniors.
reversemaniac

It is my understanding that tax deferral programs are only allowed for borrowers in California, Oregon and Massachusetts – as they take a subordinate lien position. All other states take a 1st lien position on deferral programs, so they are not allowed under HECM regs.
oldtimer2

It has been 4 or 5 years, when I worked with a client in Alexandria, Va. the city of Alexandria allowed for a deferral and subordinated to the reverse.

Looking at their web site now, they allow for full exemption, 50%exemption, 25%exemption or a deferral based on income. The solution involves state and local governments realizing there is a net positive in aging in place and therefore allowing for an exemption or deferral.
reversemaniac

It is my understanding that tax deferral programs are only allowed for borrowers in California, Oregon and Massachusetts – as they take a subordinate lien position. All other states take a 1st lien position on deferral programs, so they are not allowed under HECM regs.rn
Anonymous

It has been 4 or 5 years, when I worked with a client in Alexandria, Va. the city of Alexandria allowed for a deferral and subordinated to the reverse. rnrnLooking at their web site now, they allow for full exemption, 50%exemption, 25%exemption or a deferral based on income. The solution involves state and local governments realizing there is a net positive in aging in place and therefore allowing for an exemption or deferral. rn

HUD Reverse Mortgage Foreclosures: Will They or Won’t They?

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