HECM Taxes and Insurance Guidance Delayed, HUD Provides Some Details

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.

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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.

 

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  • It will be interesting to see the Mortgagee Letter next month. It really does not appear to change much except mandated notification and new counseling requirements. Who will pay for that?

  • This problem can become a no brainer, if they approach Social Security and have an escrow account set up for those not paying their insurance or real estate taxes.How it can work is similar to having your medicare insurance payment.Twice a year prior to the deadline on taxes and insurance,a consumer mails in a copy of their receipt for payment and is reimbursed.I guess you need a large bureacratic organization to find a solution.Ed Frankel

    • Ed,

      I would not be so willing to put the Social Security benefits at risk of reduction. Most of my clients would all but starve if their Social Security was substantially reduced.

      Wow!! I never expected an originator to suggest this solution.

      • Apparently you did not understand my proposal,we are only addressing the problem loans,taxes and insurance most be paid.The new counseling guidelines require us to make sure people know that they must pay T&I to maintain the program and not default.Show me a better less stressful way to address this problem and i will listen.You pointed out that the news would be very negative ,then how would it look if the lenders foreclosed on all those in default?

      • Ed,

        Let me be clear. You are proposing that those who cannot afford to pay taxes and insurance have those payments withheld from their Social Security and if they paid for those same taxes and insurance that they could not otherwise afford and provide proof of payment it would be refunded, right?

        How does that work? If they paid it and must provide proof, chances are the impounder paid it as well. So where is the refund coming from? Who files the refund claim with the county government?

        But more important how will this get done? Do you really believe that HUD can walk down the proverbial hall to approach and simply talk Social Security into withholding taxes and insurance from benefits checks? Who gave the Social Security Administration that right?

        If your idea only applies to those with loans which are behind, that means that the withholding will not be for one set of insurance and taxes but two the first time it is done — the amount paid by the lender and the amount coming due. On top of that the first payment will not go to the tax collector or insurer but to the servicer to refund it for their initial payment.

        Foreclosure would be far less punative than the proposal you make.

    • Ed,

      FHA is an insurer, not the lender unless the loan is consigned. How can FHA just “approach” Social Security to do anything like this? There is no authorization for any such taking by a lender or for that matter FHA. Social Security benefits are protected against such withholding.

      I can see the headlines now: “Lenders try to legalize stealing Social Security from needy seniors.” “Or isn’t the home security enough?”

      Try and legislate that one through Congress. What a great way to kill the HECM program!!

      • If we don’t control defaults in a logical way the program is gone for all.If you read my proposal you would see that I am only addressing problems not all RM’s.To that end, the person(s) will receive a refund if they paid their taxes and insurance on time.

      • Ed,

        Looking at what The_Critic wrote, there is not much for me to say on your comment to me. However, as to your comment to the The_Critic, I do have some response.

        I thought you were an originator, not a counselor. The counseling handbook makes it clear that it is the job of counselors to bolster their emphasis on the requirement of borrowers to pay insurance and taxes. It is no doubt ours as well but the counseling handbook is not our guide; it is the guide for counselors.

        There is a far less stressful way (at least as to borrowers) to handle delinquent taxes and insurance and that is the way it has been handled for the last twenty years. Don’t you agree?

        In large part I agree with The_Critic, the situation is not nearly so simple as you have painted it. BUT I do not agree that foreclosure is the best answer either.

        Now we come to a very important question. What if the senior has no Social Security income? What is your proposal in those cases? Not every retiree in the US gets Social Security benefits. Those currently 62 are generally not eligible to receive Social Security. Then there are seniors who worked for entities that are exempt from Social Security like school teachers and certain ministers.

        It is clear you need to carefully look into the Social Security suggestion; I do not believe it is feasible without enabling legislation. Please let me know where I am going wrong.

  • Another perspective: As the beneficiary of an HECM, my husband and I had no options. Absolutely none. When he lost his job of 7 years and I lost mine of 10 years, he was 62 and I was 51, we either foreclosed and moved or did the reverse mortgage. End of story. We had to agree with anything the counselor said because we had no options. This was an opportunity. Now if we lose our home due to non-payment of T&I we will have lost nothing, but gained time, to once again, face the inevitable, and once again, look for new opportunities. For us the HECM was a gift, and even if we knew we couldn’t pay T&I, it would have bought us time. We would be appreciative of others, such as yourselves, trying to help us keep our home, but that would be a 2nd gift. I know it would not “look good” for a lender to foreclose on us, but, really, how many “gifts” can one expect?

    • pseudonym2,

      Wishing you the best in finding new jobs. Your story is very touching. I hope you can find a way to get caught up and keep caught up so that you will not be in danger of losing your home.

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