New policy guidance from the Department of Housing and Urban Development on managing a reported 13,000 HECM loans in default from failure to pay taxes and insurance has been pushed back until the first week of January according to several people briefed on the decision.
Originally scheduled for release last week, HUD held a conference call with servicers and lenders on Thursday to provide a better idea of what to expect when the information is published. Planned for distribution on January 3rd, the Mortgagee Letter will outline new procedures for servicers to manage repayments and help borrowers find additional resources to remain in their home.
According to sources on the call, servicers are required to notify borrowers they’re in default and provide 30 days to respond to the notice. If they respond, servicers must refer borrowers to housing counselors who will review their financial situation and utilize the Benefits Checkup tool — a searchable database of over 2,000 public and private benefits —to see what programs may be available.
After looking at the borrowers situation, counselors will analyze their ability to pay and explain the consequences if they don’t follow through on their obligations. Counselors will then develop an action plan with borrowers and submit it to the servicer for approval.
Servicers have the discretion to set the amount of time available for borrowers to bring the loan current, but HUD did provide a suggested timeline. As an example, the agency said for $500 owed, borrowers should have a three month time period, for over $5,000, they suggested a maximum of 24 months.
At the end of the day, HUD is giving servicers the final say on determining when all loss mitigation options have been exhausted and when they should refer the loan to be called due and payable. If borrowers are unable to afford remaining in the home, counselors will assist in helping them find alternative housing.
HUD will also require that servicers provide monthly reports on the status of all loans in default starting February 2011.