MBA Urges Use of Hardest Hit Funds to Cure HECM Defaults

The Mortgage Bankers Association is requesting the Treasury and the Department of Housing and Urban Development authorize use of the Innovation Fund for Hardest Hit Housing Markets program (Hardest Hit Fund) and the Emergency Homeowners Loan Program (EHLP) to cure tax and insurance delinquencies associated with reverse mortgages.

According to a report published earlier this year by the HUD Inspector General, there are approximately 20,000 HECM borrowers who are delinquent on their taxes and or hazard insurance payments.

Despite developing solutions that will allow servicers to resolve these delinquencies with the HECM borrower, the MBA worries that some borrowers will face foreclosure due to their inability to meet the requirements of their mortgage obligations.  “We are very concerned about this situation and believe the Hardest Hit Fund program and EHLP offer viable solutions,” said John Courson, President and Chief Executive Offer of the MBA in a letter.

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As part of the Hardest Hit Fund, the Treasury has made available an additional $2 billion to help unemployed borrowers cure their delinquencies and sustain homeownership while they seek re-employment, additional employment or job training.

“We understand, however, that the Hardest Hit Fund is not necessarily restricted to unemployed borrowers,” said the MBA. Therefore, the association “respectfully urges Treasury to authorize and encourage the states and respective housing finance agencies to use these funds to help senior citizens who are in default on their HECMs.”

According to the MBA, approximately half of the delinquencies are for $5,000 or less and believes a significant number of borrowers will be able to cure the delinquencies with assistance and remain current on tax and insurance payments going forward without government assistance.

The MBA is also asking for assistance from the EHLP program, which provides $1 billion to HUD to offer bridge loans for up to $50,000 to assist eligible homeowners with payments on delinquent loans, including delinquent taxes and insurance, and more.  However, the EHLP is restricted by law to address borrowers with reductions in income due to unemployment, underemployment or medical conditions.

“Despite these restrictions, we believe HUD may be able to expand the program to seniors with reverse mortgage defaults. A significant number of seniors are unemployed/retired and may have suffered a reduction in income due to a medical condition and thus could qualify for the program.”

To view a copy of the letter, see here.

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  • While I support the idea of using this fund, what evidence does the MBA offer to support their position that formerly delinquent seniors will keep their taxes and insurance current especially if there was a medical problem or retirement has hit an unexpected road bump.

  • Somebody please explain to me why the MBA thinks they are so smart about reverse mortgages to send letters like this to senior Administration officials? They are a complete non-factor in our industry. Any reverse conference they ever ran could have been held in a hallway closet! Besides, don’t they have enough to worry about with their tanking revenues?

    Now having said that, this concept of helping senior borrowers who are in default on taxes or insurance merits consideration. The Obama administration has handed out billions of dollars to help homeowners try to stave off foreclosure.

    I think our seniors deserve the same consideration.

  • Short term solutions like the one proposed by MBA are interesting, but our industry should never lose sight of the need for a sustainable solution to the T&I default issue.

    The bridge loan concept would work best for issuers and serivcers if applied only as a way to cure current defaults sufficient to assign the loan to HUD. If it were combined with a clear direction from HUD to foreclose on future T&I defaults, that might form a realistic solution to the issue and allow lenders to set rules and policies going forward that would manage the financial risk associated with this issue appropriately.

    It doesn’t get the industry away from the headline risk, but would present a very clear and fair “rules of the road” for borrowers and lenders/issuers/servicers to operate.

    Anyone with a mortgage is required to maintain insurance (not just seniors with reverse mortgages) and anyone not paying property taxes will eventually face a judgement and foreclosure. Our industry is unfortunately positioned as the messenger/agent/catalyst.

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