Escrow Service Partners With Counseling Agencies to Address HECM T&I Defaults

A new solution for the reverse mortgage market has emerged to address the rising number of tax and insurance defaults, by offering an escrow-like service for borrowers.

Peace of Mind (or “POM”) Escrow Services, a Chicago-based division of National Tax Search, LLC has developed a third party bill pay service to help HECM borrowers manage the payment of property tax and homeowner insurance.

POM Escrow is working directly with the Reverse Mortgage Counseling Association to provide the service to borrowers as well as introduce it to the reverse mortgage industry.

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The service also aims to quickly address cases where a borrower is having difficulty making tax and insurance payments, essentially raising a red flag earlier in the process.

While the company uses the term “escrow,” the service is more in line with a bill-pay option that existing and new borrowers will have, explains Lori Eshoo, who founded the company after many years operating National Tax Search, a property tax management company.

Lenders can’t offer escrow accounts directly under HUD guidance, but the service could be a good solution for the right borrower, say some lenders.

Michael Cullen, senior vice president, reverse mortgage lending, wholesale and correspondent, for Bank of America says he first looked into the service when he saw the need from seniors who were not making their tax and insurance bills.

“It’s a problem for the industry and the product,” he says. “The worst thing we can do is foreclose.”

A report from the Department of Housing and Urban Development OIG found there are nearly 13,000 such loans in default as of August 2010.

Even if the service is used on a cyclical basis, Cullen says, it could be worthwhile for borrowers who find themselves having difficulty keeping up with the payments.

“Even if it’s only a three year solution, a lot can happen in three years. The senior will be older, we hope the home will be worth more…the industry needs an escrow.”

POM Escrow, while not connected directly with the servicer, would run escrow analysis, determine tax and insurance payments, and start collecting from the borrower on a monthly basis, for a fee, Eshoo explains.

“Many of these borrowers don’t live in the same place for 12 months,” says Eshoo. “It’s hard to keep track of when the bill is coming, when is the due date, and to have to manage whether taxes are increasing or decreasing. We’d manage all that and make sure the bill gets paid timely.”

Eshoo says POM Escrow has received interest from several large lenders and is in the process of working with counselors to inform them of the service, with plans to launch June 1 and a starting pilot with several counseling agencies with a goal of June 15.

Borrowers will face a setup fee and monthly service fee, with the option for contracted terms, and can work with the service through a secure web-based system easily accessed by both the homeowner and lender.

While the Department of Housing and Urban Development is aware of the product, it has not endorsed the product officially.

Eshoo says while HUD rarely endorses private products, POM hopes that once the product gains more traction, HUD will respond positively.

“We hope that once we show the positive interaction between the borrowers, lenders and ultimately the solution to defaults to HUD, they will have more of an opinion in a positive manner,” she says.

Written by Elizabeth Ecker

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  • Maybe it’s just me but it seems like this has either outright, or at the very least, a strong possibility of significant conflicts of interests. You have a tax service company owning an escrow service and it is aligned with a counseling association? Hmmm…….

    I am also concerned about POM charging seniors a fee for this service and other than the escrow part, current reverse servicers already do everything else. From what I have heard, seniors in tax and/or insurance default are already in dire financial straits so requiring them to pay an added fee will just increase their financial burden.

    And expecting HUD to endorse this service that costs the seniors money, yeah that’s not going to happen.

  • I think the key piece for this type of service is how much will it cost for the senior (who may have limited available funds left over at the end of each month to begin with)?  The article mentioned that “Borrowers will face a setup fee and monthly service fee, with the option for contracted terms…”  

    Many estimates of the current T&I default population range from 3-5% of all outstanding HECM loans – which means that 95-97% of all HECM borrowers are doing a satisfactory job of handling their own tax and insurance payments.   

  • I think the key piece for this type of service is how much will it cost for the senior (who may have limited available funds left over at the end of each month to begin with)?  The article mentioned that “Borrowers will face a setup fee and monthly service fee, with the option for contracted terms…”  

    Many estimates of the current T&I default population range from 3-5% of all outstanding HECM loans – which means that 95-97% of all HECM borrowers are doing a satisfactory job of handling their own tax and insurance payments.   

  • Kudos to POM Escrow Services for seeing the opportunities for a business and an opportunity to serve in the technical default challenge. Good luck! 

  • Kudos to POM Escrow Services for seeing the opportunities for a business and an opportunity to serve in the technical default challenge. Good luck! 

  • I am still waiting for a presentation of details. 

    This looks like an expensive and unrealistic answer to a difficult issue related to a small percentage of borrowers.  While the tax service can be adequately separated from the escrow service, this does not seem to be a pragmatic solution to the problem at hand. 

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