The Washington Post is reporting that reverse mortgage lenders will receive guidance from the US Department of Housing and Urban Development this summer on how handle taxes and insurance default for the HECM program.
Vicki Bott, Federal Housing Administration deputy assistant secretary for single-family housing, told the WAPO the upcoming guidance will emphasize a “curative approach” that allows seniors to “develop a plan to repay past tax and insurance delinquencies.” However, if the plan doesn’t pan out – and the borrowers simply lack the capacity to pay what they owe – FHA will be forced to pull the plug and foreclose.
The decision to toughen up on taxes and insurance defaults is something the industry has been facing for years and is a growing problem according to Joe Kelly, a partner with New View Advisors, a New York consulting firm active in the reverse mortgage bond investment field.
“A lot of this is the economy,” said Kelly, but “the program design itself is a contributing factor.” Unlike standard mortgages, reverse mortgages require no monthly payments from the borrower and have no escrow accounts to cover property tax bills and insurance. Without escrows, some seniors may not keep track of property tax notices they receive – thereby exposing their houses to tax liens that take legal precedence over the mortgage lien.
According to the article:
Both Fannie and the FHA say they are working on solutions that will not only flag defaults on seniors’ tax and insurance payments earlier but also create a mandatory, step-by-step system to contact borrowers who are delinquent, determine the causes of the default, and if necessary refer them to charitable groups who can assist them and prevent foreclosure.