HECM Servicing Faces “Holding Pattern” Following HUD FAQs

On the heels of an AARP lawsuit dismissed by the court regarding reverse mortgage foreclosures and just before AARP filed a second—this time class action—suit on a similar issue, the Department of Housing and Urban Development issued a Frequently Asked Questions document that presumably would clear things up for reverse mortgage servicers and lenders. While it did just that for borrowers and lenders, it added a new stipulation for servicers that leaves them with their hands temporarily tied as the changes kick in.

In the FAQ, HUD clarified the HECM program’s non-recourse policy, namely that reverse mortgage borrowers—and their heirs—will not owe more on the loan than the home is worth upon the death of the borrower. The clarification impacts borrowers, lenders and loan servicers. The FAQ specified that a sale of the mortgaged property is permitted for at least the lesser of the loan balance or 95% of current appraised value if the loan is due and payable.

The clarifications addressed the issues raised in an earlier AARP lawsuit against HUD, which argued for heirs of reverse mortgage borrowers to be entitled to buy the home for the fair market value, rather than the full balance of the loan.

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But with regard to notifying borrowers’ heirs that they have the option to do a short sale of the property if they are a family member, it adds time to the process and without much interest from heirs, says Ryan LaRose, chief operating officer of Celink.

In complying with the HUD request to place the loans on hold for 45 days that are in due and payable, foreclosure and pending eviction status as a result of death, Celink sent notifications to borrowers’ heirs telling them of their option to do a short sale.

“At this point, we are in a 45-day ‘holding pattern’ waiting to see what responses we might get from these notices,” LaRose says.

As for the interest from borrowers, it has been less than overwhelming.

“We mailed the notices several weeks ago and it has generated a decent number of incoming calls of heirs with questions about the notice,” he says, “but we have not seen a high number of heirs expressing an interest in pursuing a short sale thus far.”

The AARP class action lawsuit against Wells Fargo and Fannie Mae alleges that some heirs of HECM borrowers have been foreclosed upon without notification of the option to purchase the home for 95% of the appraised value.

View the FAQ.

Written by Elizabeth Ecker

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  • Elizabeth,

     

    You state:  “In the FAQ, HUD clarified the HECM
    program’s non-recourse policy, namely that reverse mortgage borrowers—and their
    heirs—can never owe more on the loan than the home is worth.”

     

    Can you please point out where the FAQ
    addresses borrowers in regard to owing the lesser of the balance due
    or the appraised value of the home at the time of termination
    (or 95% of that value)?  It is clear that the FAQ addresses heirs in that
    manner but only following the death of the last borrower.

     

    This FAQ only appears to discuss issues related to the
    death of the last surviving borrower.  It does not appear to discuss
    anything related to nonrecourse during the life of the last surviving (or any
    other) borrower.

     

    Thanks.  

  • Elizabeth,

     

    You state:  “In the FAQ, HUD clarified the HECM
    program’s non-recourse policy, namely that reverse mortgage borrowers—and their
    heirs—can never owe more on the loan than the home is worth.”

     

    Can you please point out where the FAQ
    addresses borrowers in regard to owing the lesser of the balance due
    or the appraised value of the home at the time of termination
    (or 95% of that value)?  It is clear that the FAQ addresses heirs in that
    manner but only following the death of the last borrower.

     

    This FAQ only appears to discuss issues related to the
    death of the last surviving borrower.  It does not appear to discuss
    anything related to nonrecourse during the life of the last surviving (or any
    other) borrower.

     

    Thanks.  

      • Elizabeth,

        Thank you for your follow up and reply.You are certainly not the only one to reach the conclusion that the FAQ addresses nonrecourse as to borrowers.I can just imagine how long that FAQ will be.  

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