Fannie Mae to Start Foreclosure Process on Reverse Mortgage Defaults

Against the backdrop of a recent New York Times story about borrowers in the forward mortgage world electing to stop paying their debt – and living sometimes for years cost-free – concerns in the reverse world about prolonged defaults is drawing more attention, and some official government action.

To wit: Fannie Mae (NYSE:FNM) reportedly has been reminding reverse servicers they must follow HUD guidelines regarding tax and insurance defaults for HECM customers. In the past, Fannie has elected not to have servicers follow these established guidelines – that is, beginning foreclosure when taxes, insurance or maintenance are not current – because of so-called “headline risk.”

Now, however, servicers have been instructed to submit troubled loans to HUD to get approval to start the foreclosure process. Once approved, a demand letter is sent to the borrower(s) who has six months to cure the default. After that, the servicer must start the foreclosure process – one exception is when a borrower refuses to take necessary curative action, at which time the foreclosure process begins immediately.

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“Tax and insurance defaults have gone up dramatically in the last few years,” says one servicer, who believes reactive changes now “would turn us into collection agencies.”

At the moment, the industry is waiting for HUD to issue a promised Mortgagee Letter regarding tax and insurance (T&I) defaults. An agency spokesman told RMD: “FHA is working closely with Fannie Mae and servicers of reverse mortgages to develop a plan to notify seniors of the delinquency and provide the necessary support and outreach to these seniors to find solutions to bring delinquent taxes and insurance current.”

Considering low default balances

According to Ryan LaRose, chief operating officer of Celink – a reverse mortgage servicer – an industry committee “presented HUD with a white paper awhile back that included industry recommendations for how to deal with the existing T&I default population. It included an analysis of the loan’s LTV [loan-to-value] and took into consideration those borrowers with a low default balance and put them into a ‘monitoring’ program,” according to LaRose, who is a member of that committee.

“If FHA is smart,” says another servicer, “they will approve foreclosing on high claim amounts because [if they don’t] the situation will come back to haunt us,” he warns, adding: “Fannie wants more loans assigned to HUD.” What’s missing in all this, he says, “is that the industry has no real loss mit program for seniors.”

In the aggregate, T&I defaults are relatively small. HUD’s Erica Jessup puts the current number at less than 2 percent of all reverse mortgages extant.

Written by Neil Morse

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  • I was not informed if I did not live in my house for over a year, they could foreclose. I am paying the taxes and insurance and the house is being maintained. The house is also listed with a broker. What do I do?

  • Kevin,rnrnWhat does Fannie wanting more loans assigned to HUD have to do with PLFs? Fannie Mae has no direct input into PLFs. I believe this has to do with the management over loan servicing when it comes to loans in default.

  • I apologize for the typos and I think I have misunderstood you. I can confirm it is a required part of the content of every counseling session that possible causes of default are discussed with clients.

    You are right, I was very annoyed by your posts, suggesting that (a few) counselors are u201cmore intentu201d on spending time discussing the HECM fixed/adjustable cost issue than explaining potential cause for default seemed like a cheap dig to me.

    Similarly, I found your references to 15 minute counseling sessions costing up to $125 (at one point) mischievous. I donu2019t know anyone in the counseling industry who thinks a counseling session could be done in that amount of time. Extrapolating out a rate of pay of up to $500 per hour is a good rhetoric, but is completely detached from the reality of any counseling agency I am aware of.

    I am glad you did not mean to attack counselors in general. Like you I agree that both counselors and originators should be engaged in making sure that potential causes of default are clearly understood. Probably more important, moving forward will be for us to identify the reasons for these defaults and develop preventative strategies, in this way both counselors and originators can identify where the true risk lies and help educate clients more effectively on how to avoid these risks.

  • Daniel,

    Since it seems to be u201cthe punchu201d in your entire last paragraph, I spent time looking for the meaning of u201cinstrusive.u201d Are you saying u201cintrusiveu201d or u201cinstructive?u201d If you are saying it is intrusive to gather income and expense information, I do not know how it could be otherwise. Lenders do not require this analysis of counselors; HUD does.

    I have never seen you so sarcastic. All the typos lead to the conclusion you were livid when you wrote this and completely missed the meaning of much of what I wrote. It seems you read my knock against the u201cFEWu201d (I apologize for shouting but that is THE exact adjective in my original comment) counselors who are dedicating an inordinate amount of time on 7 basis points difference in note rates on a fixed rate HECM and tell seniors to go shop for a better rate without also discussing the differences in the true costs of less upfront costs versus no monthly servicing fee.

    I did not say the buck stopped with the counselor; Preston inaccurately and unjustly accuses me of that. What I said is that I expect counselors cover causes of foreclosure and am amazed that some seniors complain that they were not informed about such matters. Not only are such matters covered in the origination documents, they are also covered in the loan documents and are rarely overlooked in the spoken presentations most originators make. So between counseling and originators, I honestly and firmly believe a very low number, if any, of borrowers have NEVER heard about their ongoing obligations to pay insurance and taxes.

    Other than the u201cFEW,u201d neither my comment nor my reply to Prescott attacks counseling. What I do attack is the concept of counseling providing consumer protection if it is not expected that counseling provides information on the causations of foreclosure. I DO expect counselors to cover these matters. Most borrowers confirm such coverage by counselors during the signing of final loan documents. Are you stating otherwise?

    Prescott has the tendency to be unrealistic in his OVER advocating for seniors. I believe homeowners have some responsibilities for their home and to the lender/investor among which is the payment of taxes and insurance. I understand that seniors will not be able to pay these items IF their financial situation substantially worsens. But what excuse do they have if their financial situation has not changed or has actually improved since they took out their HECM? Counselors did not tell them about the causations of foreclosure? Anyone who promotes that idea is promoting nonsense.

  • Hey Frank,rnI’m very impressed with the detail you follow in your counseling. The homeowners who speak to you are getting a really good session that will really help them with their decision to get a reverse mortgage. Even though most counselors do a good job, I have to agree with the Cynic about the his comment on interest rate. I’ve had “many” of my customers come back to grill me about interest rates after their counseling session because their counselor told them to. And even though I thorougly go over the adjustable rate with a monthly payment or credit line option, my clients almost always take the fixed rate lump sum. Only occasionally will they tell me their counselor suggested they consider these options as well. Of course with this loan they hear about the “Big Money” in the lump sum and seldom hear anything else you say afterward.rnAs an industry, it is our job to educate our clients about this loan so they can make the very best decision for their specific situation. In the end I think they hear what they want to hear regardless of what we say to them during the counseling and application process. Selective listening didn’t originate here, but it is very common in our industry.

  • At no point should any consumer have ever been incurring costs like $125 for 15 minutes of counseling. The only time I have ever done a counseling session that was shorter than 45 minutes was when the consumer was busy telling me things about their reverse mortgage. (That particular “consumer” also happened to be a full time reverse mortgage sales rep for a major lender. I think I only taught him two things that he did not know prior to getting the loan.)rnrnAs for the cost, there is not enough money in available grants out there to make it worth doing as an agency. My agency has been counseling for a little over seven years. It is not easy and it really is not cheap. We were just about ready to drop it a couple of years ago when HUD allowed the agencies to charge; when they did that, we continued doing it. However, $125 doesn’t nearly cover the amount of work that goes in to properly prepare for a counseling and for the amount of time I need to spend training to meet the new requirements. I have to constantly remain on top of things or I might as well be a video tape that they just watch.rnrnFrank

  • ” the tendency of most people is to find a way to blame others” seems to apply to you pretty nicely.rnrnWhat a laugh! so it’s the counselors fault is it? I am glad in your reply to Preston you agree that lenders have that responsibility too, but blame the counselors is pretty silly. What makes you assume they are not providing this information to the borrowers? intuition?rnrnPerhaps are you suggesting that counselors should refuse to issue a certifcate unless the borrower can prove they will be able to make T and I payments for the life of the loan? Would you support that kind of consumer proection? Counselors have never had the power to refuse to serve a client for whom the taxes and insurance payments could be an issue, but lenders make that choice all the time.rnrnWhen someone does some serious research into the reasons for the defaults I bet we find the reasons are far more complicated than someone not knowing they had to contuinue to pay.rn rnI know lenders have been the target of unfair attacks recently, but this is not going to help….and by the way does anyone want to complain how instrusive a counselor is when they work through a budget with the cleint? I am guessing probably not.

  • I am a counselor. I can tell you that I do not spend much time at all on saving .07% on the fixed rate. I do try to show how, over time, the adjustable rates are a far better choice. I also go over the 5 ways the banks can immediately collect on these loans very carefully. The first is when all of the individuals on the loans pass away, the second is when they are out of the house for more than a year, the third is if they sell the house, the fourth is the requirement to maintain the house and keep up the borrower’s home owner insurance (which I also stress is very different from mortgage insurance). Finally, I stress that the borrower must pay the taxes. Because these are non-recourse loans, the lender requires that they stay first in line on the title; because taxes come from a government, they automatically go first, therefore the lenders require the taxes to be paid, regardless of any deferments or other similar programs offered by the taxing authority. If a senior is unsure as to whether they are able to use a program, they should contact the lender and *get the lender’s answer in writing.*

  • Prescott,

    Here is where the consumer protection aspect of counseling seems to evaporate in these threads. At one point seniors were incurring counseling fees as high as $125 for 15 minutes to 45 minutes of time. That is an actual rate range of over $150 per hour to $500 per hour. For that kind of cost shouldn’t the counselor have some responsibility to actually protect the consumer by at least covering some of the critical items that are believed to be missed in counseling and loan origination now?

    Maybe I am naive but it seems counselors should be providing this information along with originators. The strange thing is, most originators I know already do and the seniors we originate for acknowledge that counselors are telling them the same things.

    But isn’t it a natural tendency of most homeowners who believe the equity in their home is going lower and lower to stop paying ongoing costs? This is nothing new and the tendency of most people is to find a way to blame others, especially the ones who provided them with a reverse mortgage.

  • nI donu2019t thing itu2019s fair to assume that counseling is where the buck stops. Counselors have a lot of ground to cover and by the time theyu2019re talking with the borrower, the borroweru2019s head is swimming. HECM Counselor exam: There are 100 questions and you need to get 80 or more right in order to pass and become certified. Only 8 questions fall under the category of u201ccounselingu201d. Theoretically, you could miss every question on counseling and still pass the exam. It should be up to the broker to make sure the borrower understands the downsides of reverse mortgages and the reality of default, especially when many go to the loan having been told that they have nothing to fear because they can live in their house for as long as they live. More has to be done to ensure that the borrower fully appreciates the possibility of default and foreclosure. Certainly that is a now a prospect for the 2% of borrowers mentioned in the article. Two percent of all reverse mortgages would be about 10,000. Along with the 10,000 borrowers everyone else living in the home will have to u201chit the streetsu201d. This has the potential of a lot of negative press. I believe that the broker bares the ultimate responsibility for informing the borrower, not the counselor.n

  • Cheryl is right on point. It is natural for those with the greatest precentage of balances due to current fair market value will be most likely not to pay ongoing costs including required maintenance.

    From strictly an anecdotal standpoint, it seems more seniors who get reverse mortgages talk as if the bank owns the home. The rate of acceleration seemed to match the acceleration in the percentage of individuals who took all proceeds at funding.

    If there were a foreclosure procedure in place in prior years, headline risk would have already have been absorbed years ago and the likelihood of the industry being accused of not properly communicating causes of foreclosure would be much lower than today.

    It is odd this is such an issue when the program requires counseling by independent third parties whom one would expect would also cover potential causes for foreclosures. Although recently a few counselors seem more intent on notifying borrowers that seniors could save 0.07% on fixed rate HECM rates if those being counseled spent time shopping — despite differences in upfront cost issues.

  • Why not escrow the amount Most seniors are getting a monthly check from their reverse anyway… End of problem for those folks as for the reverse purchase loan why not build it in to the loan? Other than the hairs to an estate the seniors really don’t care their not moving again…nnRobert

  • The more loans that get assigned to HUD the larger their tab is. The larger their tab is the more pressure there is on the insurance fund. The more pressure on the reserve fund the lower the plf’s will go.

  • I was not informed if I did not live in my house for over a year, they could foreclose. I am paying the taxes and insurance and the house is being maintained. The house is also listed with a broker. What do I do?

  • Kevin,rnrnWhat does Fannie wanting more loans assigned to HUD have to do with PLFs? Fannie Mae has no direct input into PLFs. I believe this has to do with the management over loan servicing when it comes to loans in default.

  • I apologize for the typos and I think I have misunderstood you. I can confirm it is a required part of the content of every counseling session that possible causes of default are discussed with clients.

    You are right, I was very annoyed by your posts, suggesting that (a few) counselors are u201cmore intentu201d on spending time discussing the HECM fixed/adjustable cost issue than explaining potential cause for default seemed like a cheap dig to me.

    Similarly, I found your references to 15 minute counseling sessions costing up to $125 (at one point) mischievous. I donu2019t know anyone in the counseling industry who thinks a counseling session could be done in that amount of time. Extrapolating out a rate of pay of up to $500 per hour is a good rhetoric, but is completely detached from the reality of any counseling agency I am aware of.

    I am glad you did not mean to attack counselors in general. Like you I agree that both counselors and originators should be engaged in making sure that potential causes of default are clearly understood. Probably more important, moving forward will be for us to identify the reasons for these defaults and develop preventative strategies, in this way both counselors and originators can identify where the true risk lies and help educate clients more effectively on how to avoid these risks.

  • Daniel,

    Since it seems to be u201cthe punchu201d in your entire last paragraph, I spent time looking for the meaning of u201cinstrusive.u201d Are you saying u201cintrusiveu201d or u201cinstructive?u201d If you are saying it is intrusive to gather income and expense information, I do not know how it could be otherwise. Lenders do not require this analysis of counselors; HUD does.

    I have never seen you so sarcastic. All the typos lead to the conclusion you were livid when you wrote this and completely missed the meaning of much of what I wrote. It seems you read my knock against the u201cFEWu201d (I apologize for shouting but that is THE exact adjective in my original comment) counselors who are dedicating an inordinate amount of time on 7 basis points difference in note rates on a fixed rate HECM and tell seniors to go shop for a better rate without also discussing the differences in the true costs of less upfront costs versus no monthly servicing fee.

    I did not say the buck stopped with the counselor; Preston inaccurately and unjustly accuses me of that. What I said is that I expect counselors cover causes of foreclosure and am amazed that some seniors complain that they were not informed about such matters. Not only are such matters covered in the origination documents, they are also covered in the loan documents and are rarely overlooked in the spoken presentations most originators make. So between counseling and originators, I honestly and firmly believe a very low number, if any, of borrowers have NEVER heard about their ongoing obligations to pay insurance and taxes.

    Other than the u201cFEW,u201d neither my comment nor my reply to Prescott attacks counseling. What I do attack is the concept of counseling providing consumer protection if it is not expected that counseling provides information on the causations of foreclosure. I DO expect counselors to cover these matters. Most borrowers confirm such coverage by counselors during the signing of final loan documents. Are you stating otherwise?

    Prescott has the tendency to be unrealistic in his OVER advocating for seniors. I believe homeowners have some responsibilities for their home and to the lender/investor among which is the payment of taxes and insurance. I understand that seniors will not be able to pay these items IF their financial situation substantially worsens. But what excuse do they have if their financial situation has not changed or has actually improved since they took out their HECM? Counselors did not tell them about the causations of foreclosure? Anyone who promotes that idea is promoting nonsense.

  • Hey Frank,rnI’m very impressed with the detail you follow in your counseling. The homeowners who speak to you are getting a really good session that will really help them with their decision to get a reverse mortgage. Even though most counselors do a good job, I have to agree with the Cynic about the his comment on interest rate. I’ve had “many” of my customers come back to grill me about interest rates after their counseling session because their counselor told them to. And even though I thorougly go over the adjustable rate with a monthly payment or credit line option, my clients almost always take the fixed rate lump sum. Only occasionally will they tell me their counselor suggested they consider these options as well. Of course with this loan they hear about the “Big Money” in the lump sum and seldom hear anything else you say afterward.rnAs an industry, it is our job to educate our clients about this loan so they can make the very best decision for their specific situation. In the end I think they hear what they want to hear regardless of what we say to them during the counseling and application process. Selective listening didn’t originate here, but it is very common in our industry.

  • At no point should any consumer have ever been incurring costs like $125 for 15 minutes of counseling. The only time I have ever done a counseling session that was shorter than 45 minutes was when the consumer was busy telling me things about their reverse mortgage. (That particular “consumer” also happened to be a full time reverse mortgage sales rep for a major lender. I think I only taught him two things that he did not know prior to getting the loan.)rnrnAs for the cost, there is not enough money in available grants out there to make it worth doing as an agency. My agency has been counseling for a little over seven years. It is not easy and it really is not cheap. We were just about ready to drop it a couple of years ago when HUD allowed the agencies to charge; when they did that, we continued doing it. However, $125 doesn’t nearly cover the amount of work that goes in to properly prepare for a counseling and for the amount of time I need to spend training to meet the new requirements. I have to constantly remain on top of things or I might as well be a video tape that they just watch.rnrnFrank

  • ” the tendency of most people is to find a way to blame others” seems to apply to you pretty nicely.rnrnWhat a laugh! so it’s the counselors fault is it? I am glad in your reply to Preston you agree that lenders have that responsibility too, but blame the counselors is pretty silly. What makes you assume they are not providing this information to the borrowers? intuition?rnrnPerhaps are you suggesting that counselors should refuse to issue a certifcate unless the borrower can prove they will be able to make T and I payments for the life of the loan? Would you support that kind of consumer proection? Counselors have never had the power to refuse to serve a client for whom the taxes and insurance payments could be an issue, but lenders make that choice all the time.rnrnWhen someone does some serious research into the reasons for the defaults I bet we find the reasons are far more complicated than someone not knowing they had to contuinue to pay.rn rnI know lenders have been the target of unfair attacks recently, but this is not going to help….and by the way does anyone want to complain how instrusive a counselor is when they work through a budget with the cleint? I am guessing probably not.

  • I am a counselor. I can tell you that I do not spend much time at all on saving .07% on the fixed rate. I do try to show how, over time, the adjustable rates are a far better choice. I also go over the 5 ways the banks can immediately collect on these loans very carefully. The first is when all of the individuals on the loans pass away, the second is when they are out of the house for more than a year, the third is if they sell the house, the fourth is the requirement to maintain the house and keep up the borrower’s home owner insurance (which I also stress is very different from mortgage insurance). Finally, I stress that the borrower must pay the taxes. Because these are non-recourse loans, the lender requires that they stay first in line on the title; because taxes come from a government, they automatically go first, therefore the lenders require the taxes to be paid, regardless of any deferments or other similar programs offered by the taxing authority. If a senior is unsure as to whether they are able to use a program, they should contact the lender and *get the lender’s answer in writing.*

  • Prescott,

    Here is where the consumer protection aspect of counseling seems to evaporate in these threads. At one point seniors were incurring counseling fees as high as $125 for 15 minutes to 45 minutes of time. That is an actual rate range of over $150 per hour to $500 per hour. For that kind of cost shouldn’t the counselor have some responsibility to actually protect the consumer by at least covering some of the critical items that are believed to be missed in counseling and loan origination now?

    Maybe I am naive but it seems counselors should be providing this information along with originators. The strange thing is, most originators I know already do and the seniors we originate for acknowledge that counselors are telling them the same things.

    But isn’t it a natural tendency of most homeowners who believe the equity in their home is going lower and lower to stop paying ongoing costs? This is nothing new and the tendency of most people is to find a way to blame others, especially the ones who provided them with a reverse mortgage.

  • nI donu2019t thing itu2019s fair to assume that counseling is where the buck stops. Counselors have a lot of ground to cover and by the time theyu2019re talking with the borrower, the borroweru2019s head is swimming. HECM Counselor exam: There are 100 questions and you need to get 80 or more right in order to pass and become certified. Only 8 questions fall under the category of u201ccounselingu201d. Theoretically, you could miss every question on counseling and still pass the exam. It should be up to the broker to make sure the borrower understands the downsides of reverse mortgages and the reality of default, especially when many go to the loan having been told that they have nothing to fear because they can live in their house for as long as they live. More has to be done to ensure that the borrower fully appreciates the possibility of default and foreclosure. Certainly that is a now a prospect for the 2% of borrowers mentioned in the article. Two percent of all reverse mortgages would be about 10,000. Along with the 10,000 borrowers everyone else living in the home will have to u201chit the streetsu201d. This has the potential of a lot of negative press. I believe that the broker bares the ultimate responsibility for informing the borrower, not the counselor.n

  • Cheryl is right on point. It is natural for those with the greatest precentage of balances due to current fair market value will be most likely not to pay ongoing costs including required maintenance.

    From strictly an anecdotal standpoint, it seems more seniors who get reverse mortgages talk as if the bank owns the home. The rate of acceleration seemed to match the acceleration in the percentage of individuals who took all proceeds at funding.

    If there were a foreclosure procedure in place in prior years, headline risk would have already have been absorbed years ago and the likelihood of the industry being accused of not properly communicating causes of foreclosure would be much lower than today.

    It is odd this is such an issue when the program requires counseling by independent third parties whom one would expect would also cover potential causes for foreclosures. Although recently a few counselors seem more intent on notifying borrowers that seniors could save 0.07% on fixed rate HECM rates if those being counseled spent time shopping — despite differences in upfront cost issues.

  • Cheryl is right on point. It is natural for those with the greatest precentage of balances due to current fair market value will be most likely not to pay ongoing costs including required maintenance.

    From strictly an anecdotal standpoint, it seems more seniors who get reverse mortgages talk as if the bank owns the home. The rate of acceleration seemed to match the acceleration in the percentage of individuals who took all proceeds at funding.

    If there were a foreclosure procedure in place in prior years, headline risk would have already have been absorbed years ago and the likelihood of the industry being accused of not properly communicating causes of foreclosure would be much lower than today.

    It is odd this is such an issue when the program requires counseling by independent third parties whom one would expect would also cover potential causes for foreclosures. Although recently a few counselors seem more intent on notifying borrowers that seniors could save 0.07% on fixed rate HECM rates if they spent time counseling — despite differences in upfront cost issues.

    • I don’t thing it’s fair to assume that counseling is where the buck stops. Counselors have a lot of ground to cover and by the time they’re talking with the borrower, the borrower’s head is swimming. HECM Counselor exam: There are 100 questions and you need to get 80 or more right in order to pass and become certified. Only 8 questions fall under the category of “counseling”. Theoretically, you could miss every question on counseling and still pass the exam. It should be up to the broker to make sure the borrower understands the downsides of reverse mortgages and the reality of default, especially when many go to the loan having been told that they have nothing to fear because they can live in their house for as long as they live. More has to be done to ensure that the borrower fully appreciates the possibility of default and foreclosure. Certainly that is a now a prospect for the 2% of borrowers mentioned in the article. Two percent of all reverse mortgages would be about 10,000. Along with the 10,000 borrowers everyone else living in the home will have to “hit the streets”. This has the potential of a lot of negative press. I believe that the broker bares the ultimate responsibility for informing the borrower, not the counselor.

      • Prescott,

        Here is where the consumer protection aspect of counseling seems to evaporate in these threads. At one point seniors were incurring counseling fees as high as $125 for 15 minutes to 45 minutes of time. that is an actual rate range of over $150 per hour to $500 per hour. For that kind of cost shouldn't the counselor have some responsibility to actually protect the consumer by at least covering some of the critical items that are believed to be missed in counseling and loan origination now?

        Maybe I am naive but it seems counselors should be providing this information along with originators. The strange thing is, most originators I know already do and the seniors we originate for acknowledge that counselors are telling them the same things.

        But isn't it a natural tendency of most homeowners who believe the equity in their home is going lower and lower to stop paying ongoing costs? This is nothing new and the tendency of most people is to find a way to blame others, especially the ones who provided them with a reverse mortgage.

      • ” the tendency of most people is to find a way to blame others” seems to apply to you pretty nicely.

        What a laugh! so it's the counselors fault is it? I am glad in your reply to Preston you agree that lenders have that responsibility too, but blame the counselors is pretty silly. What makes you assume they are not providing this information to the borrowers? intuition?

        Perhaps are you suggesting that counselors should refuse to issue a certifcate unless the borrower can prove they will be able to make T and I payments for the life of the loan? Would you support that kind of consumer proection? Counselors have never had the power to refuse to serve a client for whom the taxes and insurance payments could be an issue, but lenders make that choice all the time.

        When someone does some serious research into the reasons for the defaults I bet we find the reasons are far more complicated than someone not knowing they had to contuinue to pay.

        I know lenders have been the target of unfair attacks recently, but this is not going to help….and by the way does anyone want to complain how instrusive a counselor is when they work through a budget with the cleint? I am guessing probably not.

      • Daniel,

        Since it seems to be “the punch” in your entire last paragraph, I spent time looking for the meaning of “instrusive.” Are you saying “intrusive” or “instructive?” If you are saying it is intrusive to gather income and expense information, I do not know how it could be otherwise. Lenders does not require this analysis of counselors; HUD does.

        I have never seen you so sarcastic. All the typos lead to the conclusion you were livid when you wrote this and completely missed the meaning of much of what I wrote. It seems you read my knock against the “FEW” (I apologize for shouting but that is THE exact adjective in my original comment) counselors who are dedicating an inordinate amount of time on 7 basis points difference in note rates on a fixed rate HECM and tell seniors to go shop for a better rate without also discussing the differences in the true costs of less upfront costs versus no monthly servicing fee.

        I did not say the buck stopped with the counselor; Preston inaccurately and unjustly accuses me of that. What I said is that I expect counselors cover causes of foreclosure and am amazed that some seniors complain that they were not informed about such matters. Not only are such matters covered in the origination documents, they are also covered in the loan documents and are rarely overlooked in the spoken presentations most originators make. So between counseling and originators, I honestly and firmly believe a very low number, if any, of borrowers have NEVER heard about their ongoing obligations to pay interest and taxes.

        Other than the “FEW,” neither my comment nor my reply to Prescott attacks counseling. What I do attack is the concept of counseling providing consumer protection if it is not expected that counseling provides information on the causations of foreclosure. I DO expect counselors to cover these matters. Most borrowers confirm such coverage by counselors during the signing of final loan documents. Are you stating otherwise?

        Prescott has the tendency to be unrealistic in his OVER advocating for seniors. I believe homeowners have some responsibilities for their home and to the lender/investor among which is the payment of taxes and insurance. I understand that seniors will not be able to pay these items IF their financial situation substantially worsens. But what excuse do they have if their financial situation has not changed or has actually improved since they took out their HECM? Counselors did not tell them about the causations of foreclosure? Anyone who promotes that idea is promoting nonsense.

      • I am a counselor. I can tell you that I do not spend much time at all on saving .07% on the fixed rate. I do try to show how, over time, the adjustable rates are a far better choice. I also go over the 5 ways the banks can immediately collect on these loans very carefully. The first is when all of the individuals on the loans pass away, the second is when they are out of the house for more than a year, the third is if they sell the house, the fourth is the requirement to maintain the house and keep up the borrower's home owner insurance (which I also stress is very different from mortgage insurance). Finally, I stress that the borrower must pay the taxes. Because these are non-recourse loans, the lender requires that they stay first in line on the title; because taxes come from a government, they automatically go first, therefore the lenders require the taxes to be paid, regardless of any deferments or other similar programs offered by the taxing authority. If a senior is unsure as to whether they are able to use a program, they should contact the lender and *get the lender's answer in writing.*

      • Hey Frank,
        I'm very impressed with the detail you follow in your counseling. The homeowners who speak to you are getting a really good session that will really help them with their decision to get a reverse mortgage. Even though most counselors do a good job, I have to agree with the Cynic about the his comment on interest rate. I've had “many” of my customers come back to grill me about interest rates after their counseling session because their counselor told them to. And even though I thorougly go over the adjustable rate with a monthly payment or credit line option, my clients almost always take the fixed rate lump sum. Only occasionally will they tell me their counselor suggested they consider these options as well. Of course with this loan they hear about the “Big Money” in the lump sum and seldom hear anything else you say afterward.
        As an industry, it is our job to educate our clients about this loan so they can make the very best decision for their specific situation. In the end I think they hear what they want to hear regardless of what we say to them during the counseling and application process. Selective listening didn't originate here, but it is very common in our industry.

      • I was not informed if I did not live in my house for over a year, they could foreclose. I am paying the taxes and insurance and the house is being maintained. The house is also listed with a broker. What do I do?

    • Kevin,

      What does Fannie wanting more loans assigned to HUD have to do with PLFs? Fannie Mae has no direct input into PLFs. I believe this has to do with the management over loan servicing when it comes to loans in default.

      • The more loans that get assigned to HUD the larger their tab is. The larger their tab is the more pressure there is on the insurance fund. The more pressure on the reserve fund the lower the plf's will go.

  • At no point should any consumer have ever been incurring costs like $125 for 15 minutes of counseling. The only time I have ever done a counseling session that was shorter than 45 minutes was when the consumer was busy telling me things about their reverse mortgage. (That particular “consumer” also happened to be a full time reverse mortgage sales rep for a major lender. I think I only taught him two things that he did not know prior to getting the loan.)

    As for the cost, there is not enough money in available grants out there to make it worth doing as an agency. My agency has been counseling for a little over seven years. It is not easy and it really is not cheap. We were just about ready to drop it a couple of years ago when HUD allowed the agencies to charge; when they did that, we continued doing it. However, $125 doesn't nearly cover the amount of work that goes in to properly prepare for a counseling and for the amount of time I need to spend training to meet the new requirements. I have to constantly remain on top of things or I might as well be a video tape that they just watch.

    Frank

  • I apologize for the typos and I think I have misunderstood you. I can confirm it is a required part of the content of every counseling session that possible causes of default are discussed with clients.

    You are right, I was very annoyed by your posts, suggesting that (a few) counselors are “more intent” on spending time discussing the HECM fixed/adjustable cost issue than explaining potential cause for default seemed like a cheap dig to me.

    Similarly, I found your references to 15 minute counseling sessions costing up to $125 (at one point) mischievous. I don’t know anyone in the counseling industry who thinks a counseling session could be done in that amount of time. Extrapolating out a rate of pay of up to $500 per hour is a good rhetoric, but is completely detached from the reality of any counseling agency I am aware of.

    I am glad you did not mean to attack counselors in general. Like you I agree that both counselors and originators should be engaged in making sure that potential causes of default are clearly understood. Probably more important, moving forward will be for us to identify the reasons for these defaults and develop preventative strategies, in this way both counselors’ originators can identify where the true risk lies and help educate clients more effectively on how to avoid these risks.

  • The more loans that get assigned to HUD the larger their tab is. The larger their tab is the more pressure there is on the insurance fund. The more pressure on the reserve fund the lower the plf’s will go.

  • Why not escrow the amount Most seniors are getting a monthly check from their reverse anyway… End of problem for those folks as for the reverse purchase loan why not build it in to the loan? Other than the hairs to an estate the seniors really don’t care their not moving again…nnRobert

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