The Department of Housing and Urban Development published new guidance for lenders to manage an estimated 13,000 HECM reverse mortgages in default from failure to pay taxes and insurance.
“We understand that some senior citizens have not paid their taxes or insurance for some time and may be at risk of losing their home,” said FHA Commissioner David H. Stevens. “Today’s guidance is designed to establish a clear framework that protects both the homeowner and the lender who participate in our reverse mortgage program.”
HUD regulations allow lenders to advance taxes and insurance payments for borrowers from available mortgage funds, but once the resources are exhausted, the lender must advance funds to protect FHA’s interest and obtain reimbursement from the borrower. According to HUD, these unpaid debts and lender advances have resulted in an untenable situation that could put the FHA Insurance Fund at risk and result in foreclosure proceedings against delinquent seniors.
The mortgagee letter published by HUD provides a framework for lenders on how to manage the process when a lender or servicer advanced corporate funds to satisfy an unpaid property charge on behalf of the borrower.
“It is only after all applicable loss mitigation strategies have been exhausted that the mortgagee may submit a due and payable request to HUD,” said Steven in the letter. “While it is HUD’s goal to avoid foreclosures as a result of unpaid property charges, mortgagors must comply with the terms of their mortgage, and mortgagees must comply with FHA requirements including the regulations as clarified in pertinent policy issuances.”
When a borrower fails to pay their taxes or insurance, the lender is required to notify the borrower within 30 days of the first missed payment and inform them that an obligation of the mortgage has not been performed and it’s not in compliance with FHA requirements. Lenders are also required to offer loss mitigation options to allow the borrower to bring the loan into compliance.
Some of the options HUD suggests are establishing a realistic payment plan for the delinquent property charges; contacting a HUD approved counseling agency to receive free assistance in finding some viable resolution to their delinquency; refinancing the delinquent HECM into a new reverse mortgage if there is sufficient equity to satisfy the existing mortgage and outstanding property charges.
HUD is also providing nearly $3 million to housing counseling agencies to specifically help reverse mortgage borrowers facing this issue. “Counselors will help elderly homeowners work with their servicer to create repayment plans that cure the outstanding balance. If keeping the home is no longer an option, the counselors will help the borrower transition to alternative housing,” said the agency.
Lenders have until February 28, 2011, to send all letters to borrowers with loans that are delinquent as of the date of the mortgagee letter. Thereafter, letters must be sent as soon as the mortgagee receives notice of a missed payment.
In addition, HUD is requiring that Mortgagees report all delinquent loans in their portfolio to HUD, including any loan where the borrower is on a repayment plan or in a deferred status.
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