Technical Defaults Challenge Reverse Mortgage Servicers

To some, the term “technical default” is akin to being “somewhat pregnant” – i.e. inherently contradictory, since one either is or isn’t. However, with so much sensitivity surrounding seniors and reverse mortgages, their failure to properly make tax and insurance (T&I) payments produces a “you go first” reaction when it comes to penalizing such action (or inaction).

That’s not likely to last forever, especially with TDs rising in direct correlation to declines in property values. Mary Riski, a New View Advisors Associate, told an industry audience this fall that “the TI issue is emerging and will be a big problem.” Her colleague, Joe Kelly upped the ante: “The day of reckoning is at hand,” he declared, suggesting that FHA will roll out “a new product with a TI set aside.”

Servicing experts speaking at the NRMLA Annual Meeting earlier this month in San Diego were asked about the T&I issue and technical defaults. Reluctant to speak for all their peers, let alone HUD, on this touchy topic, nevertheless at the urging of audience members, some did. “I am unaware of any foreclosures today based on a T&I default,” offered Linda Bridges, assistant vice-president, reverse mortgage servicing for Wells Fargo Home Mortgage, moderating a discussion of servicing issues at the meeting. She said the industry does “have a lot of activity working with HUD right now on the T&I default [issue]. We have engaged with them several times throughout the year and our hope is to get clearer guidelines presented back to the servicing world in a Mortgagee Letter, so we do the right thing at the right time.”

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Asked again for specific numbers, Bridges said: “I can not report to you exactly how many T&I defaults there are out there.” But Marc Helm, chief operating officer, Reverse Mortgage Solutions, put the figure at “somewhere between 2 and 3 percent of [servicers’] portfolios. It could certainly be [as many as] 10,000,” he said.

Neil J. Morse has been a communications professional working in the mortgage finance industry for more than a decade. He can be reached at [email protected]