Industry veterans may have heard this before, but HUD’s deputy assistant secretary for single family housing, Vicki Bott, says her agency will shortly issue a mortgagee letter “addressing HECM’s loss mitigation tools.” Speaking to an audience gathered in San Diego last week for an annual servicing conference sponsored by the Mortgage Bankers Association, Bott said: “We know this is something that needs to be delivered to servicers because we see HECM defaults with taxes and insurance and we don’t have a clear path for the servicer to move forward.”
Her comments were greeted with some skepticism, though. “We’ve been told it’s coming before,” said one servicing and reverse mortgage veteran in the audience, “but we’re still waiting.” The toughest part of the problem for HUD, he softened, “has been deciding what to do when seniors fail to pay tax and insurance bills on their properties.” This condition, known as “technical default,” is particularly daunting when the property in question still may have considerable equity remaining. “HUD has to look long and hard at these situations and decide what kind of policy changes they’re going to make, long-term,” the seasoned practitioner noted.
The industry has been busy “working with HUD on the T&I default [issue],” said Linda Bridges, assistant vice-president, reverse mortgage servicing for Wells Fargo Home Mortgage, speaking last fall at an industry conference. “We have engaged with them several times throughout the year and our hope is to get clearer guidelines presented back to the servicing world.”
An essay on this matter, circulated last summer by New View Advisors, recommended a T&I set-aside in the form of a fixed dollar amount equal to six months of taxes and insurance payments. “This amount would be deducted, or ‘set-aside’, from the Principal Limit at origination,” the essay stated. “The servicer would then have the ability to cure T&I defaults by paying those expenses directly and adding the payment to the loan balance.”
The number of current T&I defaults seems to be a tightly held secret and more often a matter of the age of the loan (worsening as the years pass on). One estimate is “somewhere between 2 and 3 percent of servicers’ portfolios,” according to one player, who added: “It could certainly be [as many as] 10,000.”
Written by Neil Morse