New HUD Default Guidance to Address “Gap” in HECM Process

A U.S. News Money report last week covered recent and upcoming changes to reverse mortgages including added government oversight to prevent borrowers from defaulting on taxes and insurance payments.

“Clearly, a reverse mortgage requires a senior to pay insurance and taxes,” Vicki Bott, HUD deputy assistant secretary for single-family programs told U.S. News in the article. “To not have specific actions for servicers to follow … was a gap in our process regardless of the extent of the issue.”

The article, titled “Reverse Mortgages Face Another Makeover,” aims to gauge the number of reverse mortgage defaults, citing estimates from The Department of Housing and Urban Development’s Office of Inspector General (about 13,000 defaults) and National Reverse Mortgages Lenders Association President Peter Bell (28,000 defaults estimated). Recent measures taken by HUD to cut down on growing T&I defaults, the article says, include a requirement of banks to submit reports of defaults to HUD; the first of those reports were due Feb. 7.

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“While there is general agreement that defaults have been growing and are unacceptable, there have been few actual foreclosures on HECM borrowers,” the article states, quoting Bell as to the process by which a HECM loan faces foreclosure: Lenders must formally ask the government for permission to issue a due and payable notice to delinquent borrowers, Bell told U.S. News. However, until recently, HUD declined to approve such requests, and placed them in a “pending” category. This action kept loan insurance in place but did not guide lenders in how to help resolve the underlying default problems, he said. “The industry has been asking HUD to provide definitive guidance on how to deal with this population of loans for several years.”

The most recent effort to prevent defaults is the introduction of new guidelines from the FHA, and Bott said in the article that the agency was working with HECM lenders to develop a new rule to reduce defaults on new loans. In the next 60 days the agency “will actually propose some level of financial analysis for new loans … and seniors’ ability to pay,” she told U.S. News.

The article also discusses the recent introduction of the HECM Saver as providing a larger equity cushion against loan losses and possible claims on the FHA insurance that provides safeguards to HECM borrowers and lenders, as well as increased counseling efforts to help seniors out of default on their loans.

Read the entire U.S. News article.

Written by Elizabeth Ecker

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