Defaults on Reverse Mortgages are Headline Risk

Wrestling with the issue of defaults on tax and insurance payments for properties which have reverse mortgages on them, private and public sector practitioners know they’re handling a hot potato issue, described succinctly by Steve Irwin as “headline risk.” 

Irwin has been in the reverse mortgage business since 1995, serving now as a consultant but prior as first vice-president of servicing operations at Financial Freedom Senior Funding Corporation.

“On the servicing side, there are ten or eleven issues that HUD is looking at,” says Irwin, adding that “the most pressing is what to do about T&I defaults.”  Among others is what to do about required repairs to a property, according to Irwin, who says these and other issues have gained prominence over the years as reverse mortgages have transitioned. “This was an experimental program that became permanent [so the] nuts and bolts continue to be addressed.”

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On the T&I question, Sarah Hulbert, president/CEO, Senior Financial Corp., says: “There needs to be more robust disclosure during the counseling, application and closing process to ensure borrowers fully understand their responsibility to pay taxes and insurance themselves on-time.” Hulbert, who is a past chair of NRMLA and now co-chairs their Ethics Committee, notes that “many seniors utilize reverse mortgages to refinance their homes and if mandatory T&I escrows were imposed it would cut the amount they could obtain in a reverse mortgage and reduce the number of seniors who would qualify.”

Neil J. Morse has been a communications professional working in the mortgage finance industry for more than a decade, currently specializing in the reverse mortgage sector. He can be reached at nmorse@morsecommunications.com

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  • Harold,rnEvery County treats taxes differently…some allow the borrower a “grace period” before they consider taxes to be technically delinquent. Others are very aggressive. Some actually go to tax sale quickly, others may wait years. There’s really no standard when it comes to that subject.

  • QuanAdora – lump sum disbursements are a big problem overall, because they leave no “cushion” for the borrower to fall back on if they get in to financial trouble after the loan closes and they can’t pay their taxes and/or insurance.rnrnThe best solution in my opinion, albeit one that not everyone will like, is to have some sort of “light underwriting” to determine if the borrower has the capability to pay their taxes and insurance REGARDLESS of whether they have a reverse mortgage or not. If the financial anaylsis shows that they cannot cover those expenses, then a forced set-aside for T&I (for some sort of set period of time) would need to be created.rnrnThe problem with this is that not all borrowers would qualify – and the required set aside might result in the borrower not being able to get enough available proceeds to pay off their 1st mortgage, etc.rnrnBut, let me ask you this – is that such a bad thing, that not everyone will qualify? Every mortgage product has certain criteria that must be met in order to qualify – I don’t see how modifying the existing criteria for the reverse mortgage to help mitigate potential foreclosures and evictions could be viewed as “bad”.

  • Y’all need to go back and read that posting by Reverse Guy. Exactly what would you say when that reporter sticks a camera in your face and asks you why Matilda is sitting out at the curb with all her earthly possessions?rnThis whole issue has catastrophe written all over it and those of you who think “it’s time to grow up” just ain’t thinking very smart.rn

  • We need some clarification. T&I monthly escrow would work perfectly forrnA. Tenure rnB. TermrnC. Credit LinernrnIs there a workable plan to cover Lump Sum? After disbursing all fundingrnavailable where do Mortgage Servicing Providers get the money tornpay the taxes and insurance on an annul basis?Bob LaFay Reverse Mortgage Consultant We would love to get details.

  • We all know what happens when we take risks, seniors more than anyone. And most of the homeowners I work with are responsible, intelligent citizens. Even the irresponsible ones don’t want to lose their homes. Any loan originator who doesn’t just flip through the pages saying, “Sign here,” explains the need to pay taxes and insurance to the borrower. There’s even a box the senior has to check on the application saying they are responsible for their own taxes and insurance.rnrnNo one wants foreclosure to happen to senior homeowners. But they are adults. If their children, friends, local officials, or Congress are concerned, they should help them pay the fees rather than blaming the reverse mortgage. As I always tell my borrowers, this is a loan, and like any other loan, it has rules to follow, and it must be paid back according to its terms. rnOne of those terms is the payment of property taxes and insurance.

  • I talked with a 67 year old man today that says he would not have the discipline to make sure he has enough to pay T&I and wanted me to escrow. I said it would decrease the amount he had access to and why wouldn’t he sit down with his bank and have them set aside a certain amount into an interest bearing account and he said “oh, thats a good idea”. Make your own assumptions but you can tell them until you’re blue in the face and it won’t be the reverse mortgage causing the problem, it’ll be the borrower’s.

  • I don’t disagree with any of the comments above – we do not want to treat seniors like they are not capable of taking care of themselves or making their own decisions.rnrnBut just answer me this – when some of the first foreclosures for T&I Defaults start to occur, do you want a news reporter sticking a camera in your face as you walk in to your office asking why a poor old woman is now homeless because they were evicted due to a mortgage product you put them in?rnrnAt that point and time, the semantics of “they were advised at closing”, “we sent them lots of letters”, and “they had to pay their taxes regardless of whether they got a reverse mortgage or not” all goes out the window. The media will sensationalize this and our entire industry will get painted with the same “heartless” brush. There is no argument of the fact that forward mortgages do this as well. However, we are dealing with what politicians and media who see this as a vulnerable class that needs protecting, regarless of what we want or the seniors want.rnrnSteve’s comments are right on – everyone just needs to be mentally prepared for the political and media backlash if T&I or Repair Default foreclosures start to occur – as it will have a significant and lasting impact on this industry. This is not just a servicing issue or just an origination issue – this is an industry issue.rn

  • I am pleasantly surprised by the comments on this subject. It is crazy that we treat this like it’s our fault that Reverse Mortgage borrowers don’t pay their T&I. Time to grow up, foreclose a few people, and start acting like a real industry.

  • I’m just so frustrated by comments like the ones quoted in the articles. It’s laughable how many times we tell the seniors they have to pay T & I and they ALL understand….that just doesn’t mean they have money left to do it. I don’t think the monthly statement line will work as they don’t look at it because they don’t HAVE to. I think it’s a non issue, it will happen whether they have a reverse mortgage or not.

  • Agreed! Add a bold tag line to the monthly statements, “Remember, (home address) is still your home, don’t forget to pay your Homeowner’s Insurance and Real Estate Taxes!”rnrnThat should do it.

  • In addition to the servicing set aside, maybe a T&I reserve should be established for 12 months T&I. It would only be used in the event of non-payment by the borrower at which point, there would be a 12 month “cushion” for the servicer to address the situation as need dictates.

  • I don’t disagree with any of the comments above – we do not want to treat seniors like they are not capable of taking care of themselves or making their own decisions.rnrnBut just answer me this – when some of the first foreclosures for T&I Defaults start to occur, do you want a news reporter sticking a camera in your face as you walk in to your office asking why a poor old woman is now homeless because they were evicted due to a mortgage product you put them in?rnrnAt that point and time, the semantics of “they were advised at closing”, “we sent them lots of letters”, and “they had to pay their taxes regardless of whether they got a reverse mortgage or not” all goes out the window. The media will sensationalize this and our entire industry will get painted with the same “heartless” brush. There is no argument of the fact that forward mortgages do this as well. However, we are dealing with what politicians and media who see this as a vulnerable class that needs protecting, regarless of what we want or the seniors want.rnrnSteve’s comments are right on – just everyone be prepared for the political and media backlash if T&I or Repair Default foreclosures start to occur – it will have a significant and lasting impact on this industry.

  • dduck12, If you want readers to respect your comments, then you must use respect when making them. One of the important traits important to our profession is empathy. Use some in your thoughts when commenting. Some of the most responsible individuals out there are persons with disabilities! Clean up your mouth!

  • Most seniors have been paying taxes and insurance for over 50 plus years when we show up to discuss the reverse mortgage program. The documents stress this issue several times. Both written and orally they are given this information. So now after 50 years of home ownership and countless insurance bills – tax bills the senior market forgets that it is part of home ownership. Get real – they know it. Let’s treat seniors as adults – they are great survivors of life and politicans also!rnrnrnrnrnrnrnrnrnrnrn

  • It is interesting that Mr. Irwin describes the program as permanent. This is very tenuous permanency where NRMLA must go u201chat in handu201d to Congress at least one time annually to get the cap lifted off the number of HECMs that can be endorsed each fiscal year as it has just done for the fiscal year ending September 30, 2010. Not that many years ago, Congress failed to act on the appropriations bill until after the beginning of the fiscal year and in response HUD began explaining what this would mean to lenders, how HUD was preparing to store requests for endorsements, and how HUD would work any backlog off.rnrnAs to taxes and insurance, letu2019s look at the facts. It is ridiculous that there is any discussion of impound accounts. In the forward industry it is done as collections are received. The most that is impounded is less three months of such costs in advance. In the norm five or six years of impounds has no equivalent in the forward industry. If so, can someone demonstrate it?rnrnWhether it is paid in impounds monthly or paid directly, all forward mortgages require that taxes and insurance be paid, period. It is time this industry grows up, bits the bullet, and simply deals with the fact that there will be foreclosures. So??? We have disclosures on this, counselors discuss it, most HECM originators discuss it, and low and behold, homeowners know they have to be paid. rnrnEach and every borrower I work with is orally told about it when signing the taxes and insurance disclosure form both at origination and closing. They are asked if they realize all the HECM does is stop the payment of interest and principal. Then they are asked what is their responsibility? Taxes, insurance, homeowner’s association dues and assessments (if applicable), repairs, and anything else to do with the home including utilities. rnrnThe most that the industry should be doing is to send out four notices on real estate taxes each year in separate mailings. The first should say there are two months before real estate taxes are due; please call us if you cannot make the payment. The second should be sent one month later and say that it is now time to pay and again if you donu2019t have the money to pay them, call us right away. The next two should be sent out if real estate taxes are paid in two installments. They should basically follow the same pattern as the first two.rnrnAs to insurance, the same principles that were set forth regarding real estate taxes should be followed. It becomes harder if a monthly payment schedule has been arranged with the insurance company.rnrnSeniors are still subject to income tax. They still have monthly and some periodic bills. It is time to realize no system can do everything for everyone. We should stop looking for cures in secrecy and make the decision to move forward in a responsible and understanding but firm manner. Mr. Irwin states this is a permanent program; letu2019s start acting like it. rn

  • It is interesting that Mr. Irwin describes the program as permanent. This is very tenuous permanency where NRMLA must go “hat in hand” to Congress at least one time annually to get the cap lifted off the number of HECMs that can be endorsed each fiscal year as it has just done for the fiscal year ending September 30, 2010. Not that many years ago, Congress failed to act on the appropriations bill until after the beginning of the fiscal year and in response HUD began explaining what this would mean to lenders, how HUD was preparing to store requests for endorsements, and how HUD would work any backlog off.

    As to taxes and insurance, let’s look at the facts. It is ridiculous that there is any discussion of impound accounts. In the forward industry it is done as collections are received. The most that is impounded is less three months of such costs in advance. In the norm five or six years of impounds has no equivalent in the forward industry. If so, can someone demonstrate it?

    Whether it is paid in impounds monthly or paid directly, all forward mortgages require that taxes and insurance be paid, period. It is time this industry grows up, bits the bullet, and simply deals with the fact that there will be foreclosures. So??? We have disclosures on this, counselors discuss it, most HECM originators discuss it, and low and behold, homeowners know they have to be paid.

    Each and every borrower I work with is orally told about it when signing the taxes and insurance disclosure form both at origination and closing. They are asked if they realize all the HECM does is stop the payment of interest and principal. Then they are asked what is their responsibility? Taxes, insurance, homeowner's association dues and assessments (if applicable), repairs, and anything else to do with the home including utilities.

    The most that the industry should be doing is to send out four notices on real estate taxes each year in separate mailings. The first should say there are two months before real estate taxes are due; please call us if you cannot make the payment. The second should be sent one month later and say that it is now time to pay and again if you don’t have the money to pay them, call us right away. The next two should be sent out if real estate taxes are paid in two installments. They should basically follow the same pattern as the first two.

    As to insurance, the same principles that were set forth regarding real estate taxes should be followed. It becomes harder if a monthly payment schedule has been arranged with the insurance company.

    Seniors are still subject to income tax. They still have monthly and some periodic bills. It is time to realize no system can do everything for everyone. We should stop looking for cures in secrecy and make the decision to move forward in a responsible and understanding but firm manner. Mr. Irwin states this is a permanent program; let’s start acting like it.

  • Most seniors have been paying taxes and insurance for over 50 plus years when we show up to discuss the reverse mortgage program. The documents stress this issue several times. Both written and orally they are given this information. So now after 50 years of home ownership and countless insurance bills – tax bills the senior market forgets that it is part of home ownership. Get real – they know it. Let's treat seniors as adults – they are great survivors of life and politicans also!

  • In addition to the servicing set aside, maybe a T&I reserve should be established for 12 months T&I. It would only be used in the event of non-payment by the borrower at which point, there would be a 12 month “cushion” for the servicer to address the situation as need dictates.

  • Agreed! Add a bold tag line to the monthly statements, “Remember, (home address) is still your home, don't forget to pay your Homeowner's Insurance and Real Estate Taxes!”

    That should do it.

  • I'm just so frustrated by comments like the ones quoted in the articles. It's laughable how many times we tell the seniors they have to pay T & I and they ALL understand….that just doesn't mean they have money left to do it. I don't think the monthly statement line will work as they don't look at it because they don't HAVE to. I think it's a non issue, it will happen whether they have a reverse mortgage or not.

  • I am pleasantly surprised by the comments on this subject. It is crazy that we treat this like it's our fault that Reverse Mortgage borrowers don't pay their T&I. Time to grow up, foreclose a few people, and start acting like a real industry.

  • I don't disagree with any of the comments above – we do not want to treat seniors like they are not capable of taking care of themselves or making their own decisions.

    But just answer me this – when some of the first foreclosures for T&I Defaults start to occur, do you want a news reporter sticking a camera in your face as you walk in to your office asking why a poor old woman is now homeless because they were evicted due to a mortgage product you put them in?

    At that point and time, the semantics of “they were advised at closing”, “we sent them lots of letters”, and “they had to pay their taxes regardless of whether they got a reverse mortgage or not” all goes out the window. The media will sensationalize this and our entire industry will get painted with the same “heartless” brush. There is no argument of the fact that forward mortgages do this as well. However, we are dealing with what politicians and media who see this as a vulnerable class that needs protecting, regarless of what we want or the seniors want.

    Steve's comments are right on – everyone just needs to be mentally prepared for the political and media backlash if T&I or Repair Default foreclosures start to occur – as it will have a significant and lasting impact on this industry. This is not just a servicing issue or just an origination issue – this is an industry issue.

  • I talked with a 67 year old man today that says he would not have the discipline to make sure he has enough to pay T&I and wanted me to escrow. I said it would decrease the amount he had access to and why wouldn't he sit down with his bank and have them set aside a certain amount into an interest baring account and he said “oh, thats a good idea”. Make your own assumptions but you can tell them until you're blue in the face and it won't be the reverse mortgage causing the problem, it'll be the borrower's.

  • We all know what happens when we take risks, seniors more than anyone. And most of the homeowners I work with are responsible, intelligent citizens. Even the irresponsible ones don't want to lose their homes. Any loan originator who doesn't just flip through the pages saying, “Sign here,” explains the need to pay taxes and insurance to the borrower. There's even a box the senior has to check on the application saying they are responsible for their own taxes and insurance.

    No one wants foreclosure to happen to senior homeowners. But they are adults. If their children, friends, local officials, or Congress are concerned, they should help them pay the fees rather than blaming the reverse mortgage. As I always tell my borrowers, this is a loan, and like any other loan, it has rules to follow, and it must be paid back according to its terms.
    One of those terms is the payment of property taxes and insurance.

  • We need some clarification. T&I monthly escrow would work perfectly for
    A. Tenure
    B. Term
    C. Credit Line

    Is there a workable plan to cover Lump Sum? After disbursing all funding
    available where do Mortgage Servicing Providers get the money to
    pay the taxes and insurance on an annul basis?Bob LaFay Reverse Mortgage Consultant We would love to get details.

  • Y'all need to go back and read that posting by Reverse Guy. Exactly what would you say when that reporter sticks a camera in your face and asks you why Matilda is sitting out at the curb with all her earthly possessions?
    This whole issue has catastrophe written all over it and those of you who think “it's time to grow up” just ain't thinking very smart.

  • QuanAdora – lump sum disbursements are a big problem overall, because they leave no “cushion” for the borrower to fall back on if they get in to financial trouble after the loan closes and they can't pay their taxes and/or insurance.

    The best solution in my opinion, albeit one that not everyone will like, is to have some sort of “light underwriting” to determine if the borrower has the capability to pay their taxes and insurance REGARDLESS of whether they have a reverse mortgage or not. If the financial anaylsis shows that they cannot cover those expenses, then a forced set-aside for T&I (for some sort of set period of time) would need to be created.

    The problem with this is that not all borrowers would qualify – and the required set aside might result in the borrower not being able to get enough available proceeds to pay off their 1st mortgage, etc.

    But, let me ask you this – is that such a bad thing, that not everyone will qualify? Every mortgage product has certain criteria that must be met in order to qualify – I don't see how modifying the existing criteria for the reverse mortgage to help mitigate potential foreclosures and evictions could be viewed as “bad”.

  • Harold,
    Every County treats taxes differently…some allow the borrower a “grace period” before they consider taxes to be technically delinquent. Others are very aggressive. Some actually go to tax sale quickly, others may wait years. There's really no standard when it comes to that subject.

  • Harold,rnEvery County treats taxes differently…some allow the borrower a “grace period” before they consider taxes to be technically delinquent. Others are very aggressive. Some actually go to tax sale quickly, others may wait years. There’s really no standard when it comes to that subject.

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