Reverse mortgage T&I defaults about to be addressed by HUD?

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

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  • At the time of the American Revolution, Virginia had belonged to England longer than Social Security has been part of our retirement system today. It might be a generationsu2019 contract to you but my mom and dad were teenagers when Social Security became law.rnrnIn 1965 when I was a teenager, LBJ got a bill passed that transferred the Social Security Trust Fund into the General Fund. That is just part of American economic history. Come on HECM_Dude, they should have presented that in at least one economic course you took.rnrnMy ancestors and extended family fought in every major American war including the American Revolution. America is a great experiment full of change. So what was true yesterday was true yesterday. Two years ago, you would have attacked me for saying that lower principal limits would be mandated by HUD. Why? Because there was some contract or anotheru2026. Moving the HECM budget category from GI to MMI changed all of that.. You, as an economist, should know that!!! rnrnWhen ol’ Sam Houston told Billy Travis to get out of the Alamo, young Billy could not see what was on the horizon and thought he knew better. Young Billy drew a line in the sand and forced some very heroic patriots to die behind inferior fortifications in a losing effort. He would not change.rnrnI appreciate your magnificent efforts to protect American taxpayers but some of us were not pleased with cash for clunkers and other government programs. Some of us believe more in the HECM program than we believe in forcing those who did not want TARP funds to accept them. What constitutional argument do you hold for not funding the subsidy? The right answer is — there is none.rn

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