With HECM Taxes and Insurance Guidance Coming, Industry Prepares to Assist

During the first week of January, the Department of Housing and Urban Development will publish their highly anticipated guidance to address an estimated 13,000 HECM reverse mortgages that are in default from a failure to pay taxes and insurance.

The guidance is expected to rely heavily on assistance from housing counseling agencies and HUD has said it plans on training 125 counselors specifically on working with this group of HECM borrowers.

“All parties involved have been working for a while on an intensive counseling program to assist HECM borrowers in technical default identify resources to help them cure their default,” said Peter Bell, President of the National Reverse Mortgage Lenders Association.

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The industry also established a workgroup that includes some of the largest lenders and servicers who contributed $130,000 to develop materials and best practices through the National Council of Aging (NCOA).  Sources tell RMD the development phase is almost finished and NCOA is expected to start reaching out to a small subset of borrowers and counseling agencies with the materials next week.

“The purpose of the project is to not only fine tune the whole process, but also to gauge how successful these counseling sessions may be when the mortgagee letter is issued,” said one executive who is involved with the group.

Part of the guidance from HUD will require use of the NCOA’s Benefits Check Up tool to help borrowers find assistance that allows them to lower their monthly expenses. Additional support could come from other places as well.

“There might be assistance available from local programs, charitable organizations or family members,” said Bell.  “In some cases, it might be a matter of finding a new insurer to underwrite the property.”

Earlier this year, the Mortgage Bankers Association requested that HUD and the Treasury allow part of the $3 billion in assistance provided through the Hardest Hit Fund and Emergency Home Loan Program to help seniors cure their defaults.

Of the funds, $2 billion was provided to help homeowners struggling to make their mortgage payments due to unemployment and the rest is part of HUD’s emergency homeowners loan program that is operated through state and non-profit entities.  The emergency loan program provides non-recourse and deferred payment loans up to $50,000 to assist borrowers with mortgage payments as well as taxes and insurance.

Despite what seems like a perfect fit, seniors don’t qualify for either program.  The hardest hit program requires the loss of a job and the emergency loan program is restricted by law to address borrowers with reductions in income due to unemployment, underemployment or medical conditions.

With so many people struggling today, one would think the programs would’ve taken off quickly but it’s not the case.  According to the Detroit Free Press, the state of Michigan was given $498.6 million of support through the program and only $2.4 million has gone to 554 homeowners since July.

Because the majority of HECM defaults have a balance of less than $5,000, even a small piece of the hardest hit programs could have a big impact.  One industry executive told RMD that $60 million of support from either fund could save 20,000 seniors from foreclosure.  The person deemed the amount the most “liberal” estimate, meaning it could be even lower.

But even with the restrictions, the MBA believed HUD could expand the program to cure HECM 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,” they said in the comment letter.

When RMD followed up with the MBA, Vicki Vidal Associate Vice President of Government Affairs for the association said it has yet to receive a response.  “We know that HUD has very specific statutory restrictions on the use of their money,” she said.

Many in the industry felt the MBA’s request was late to the game and doubted it would succeed.  But when there is so much money being thrown around to support the “hardest hit” of the housing downturn, one would hope seniors would be eligible, especially if the money is just sitting there unused.

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  • What confusion!! There are only 13,000 seniors in default but a specified amount will save 20,000 homes. This is typical of the math of those who are merely guessing.

    What in the world is a “most ‘liberal’ estimate?” We have gone down the road of guessing and estimating before. The industry should bite the bullet and gather statistics. If we did, then we could approach HUD and Congress with an actual plan. NRMLA should head up such a project. With so few servicers in the industry, this seems like a simple process.

    Beyond the mere hope of another use of the money, many Congressional bills include amendments tweaking preexisting appropriations. Some are so called “earmarks” while others are redirection of funds to put them to another use without the need for an additional appropriation.

    So what the MBA has started, NRMLA, and the major lenders along with the major servicers should be supporting. With a little imagination and the support of the correct Democratic and Republican leaders, such tweaking should be found favorable by a less liberal and more traditional Democratic White House.

    Of course some industry reps are so personally biased against anything Republican that they have tried labeling Senator McCaskill as a Republican and have failed to question the support of Senator Kohl (D-WI) for her proposals. The prejudice of industry reps must cease or we will find ourselves out in the cold every time there is a change to the “wrong” political party either in the White House or one of the chambers of Congress. For the sake of the industry industry reps need to check their political prejudices at the proverbial door.

  • This comment is not advocating the loss of the appearance of independence in counseling rather it questions how HUD is proposing to maintain it in default counseling assuming the comments in the article are reasonably accurate. It will be interesting to find out who will pay for default counseling and if the same counseling agencies which provide (or counselors who are eligible to provide) HECM origination counseling will be allowed to provide HECM default counseling. If a party with a financial interest in the default(s) can pay the cost for HECM default counseling and HECM counseling agencies and qualified HECM counselors can provide both origination and default counseling, isn’t there a risk of loss in the appearance of independence in all HECM counseling?

    Due to concerns about the loss of appearance of counseling independence from anyone having a financial stake in the outcome paying for it, we are all aware that lenders are not permitted to pay directly or indirectly for the cost of counseling at origination. HUD is by the nature of the program a neutral party with no financial interest in the result of counseling at origination since the program is not designed to result in profits to HUD; thus as to origination, there is little problem in HUD providing financing for counseling when it comes to the appearance of counseling independence.

    However, the situation changes dramatically when it comes to default counseling on payments in default or paid by servicers. Currently HUD has a huge potential financial interest in who reimburses servicers for tax and insurance payments they have made on HECMs not yet assigned and an actual financial interest in those HECMs which have been assigned. So when it comes to future default counseling not only do the servicer and note owner have a potential and many times actual financial stake in the outcome, but so also does HUD. It is hard to believe that such counseling will be voluntary with the borrower paying the costs. Counseling agencies are not going to provide HECM default counseling for free nor should they.

    If HUD pays the default counseling costs directly or indirectly, how will it prevent all counseling from appearing as if it lacks independence? How will they stop this apparent lack of independence in HECM default counseling from “bleeding” into origination counseling — just like a new 1960s Madras garment bled its colors into other garments (especially cotton) when washed at the same time in the same washer? (For those not familiar with this effect, the dyes in Madras garments of that era were not “colorfast” allowing the dyes to be transferred in the washing process to other clothes, many times ruining those clothes.)

    It would be far more reasonable if HUD used other financial advisors for default counseling and such advisors made it clear upfront that their advice is not being provided independent of those having a financial interest in the outcome. But the question then arises as to the appropriate financial advisors to use.

    “Oh, the complex web we weave, when the default process is not permitted to proceed.”

  • Currently on a very practical level the defaulted liabilities are being treated as if nonrecourse. Advising reimbursement on those payments means advising payment for something even the note owners are not enforcing; such payment advice could result in an interesting malpractice lawsuit for those state licensed professionals who render it.

    As to the counseling aspect, besides generally agreeing with the independence issues presented by The_Cynic, it is galling to read even the suggestion that BCU will be used without FIT. This shows how really worthless FIT is in advising seniors on financial matters, even in the eyes of HUD. Despite the expectation of HUD that FIT will result in a budget as stated in their own handbook, except in the most simplistic of situations FIT is all but worthless in the preparation of a reliable financial tool to help seniors evaluate their financial situation. Although BCU does not touch on all financial aspects of a borrower, in those it does, it is far more potentially helpful than FIT.

    If the foundation of default counseling is not a budget, what is it? Default financial advice should be based on an actual schedule of annual cash inflows and outflows adjusted for future expectations such as some of those somewhat addressed by FIT. To those who have limited financial counseling experience, there is nothing in FIT that a competent fee based only financial adviser would not otherwise address. If FIT is good in the origination process, then a modified version should be used in the default process; however, it should NOT be used in either. That whole section of counseling should be overhauled using an actual modified budget with the FIT “probing” questions incorporated into an expanded BCU, eliminating FIT altogether. As one accountant has said: “If it isn’t worth doing right the first time, why do it at all?”

    What happens if the senior refuses to answer even one BCU item when participating in default counseling? Will counselors withhold a counseling certificate or will the related home automatically go into foreclosure? What penalty will be incurred? Beyond all of that, shouldn’t default and foreclosure advice be provided by an attorney licensed in the state where foreclosure will be instituted?

    Has legal counsel at HUD approved this proposal? If not, HUD should not issue the Mortgagee Letter until such approval has been obtained.

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