Counseling agencies are helping a growing number of reverse mortgage borrowers who have gone into technical default on their taxes and insurance, in response to government-issued guidance on delinquency proceedings in January 2011.
Although there are no absolute figures, some estimate that about 5% of reverse mortgage borrowers have defaulted on their taxes and insurance, often because their budgets are stretched too tightly to accommodate the payments, say T&I default counselors.
Mortgagee Letter 2011-01 specified loss mitigation options that lenders must provide to borrowers who are delinquent on paying T&I, which included establishing a realistic repayment plan to the mortgage’s servicer, and having the mortgagor contact a HUD-approved housing counseling agency for assistance.
Counseling agency CredAbility has been involved in default counseling since the mortgagee letter was released in January, and through the end of August had counseled more than 1,000 borrowers who were in T&I default, says housing counseling director Sue Hunt.
On average, those receiving the counseling had an average net income of $1,400 a month, with monthly living expenses (excluding housing costs) of about $1,105. The average amount that needs to go toward T&I, at $291, leaves those borrowers with a scant $4 or $5 monthly surplus, Hunt explained.
“We spend time working with homeowners to help work out ways to make the budget look better,” says Hunt; this includes searching for government benefits and other programs for which the borrower may qualify.
“What we want to do is ultimately create a budget that has some surplus in it, so they can start repaying their servicer, while maintaining other needs,” she says.
Each month, CredAbility counsels between 100 and 125 borrowers, who owe an average of $6,600 in advances to their servicers, says Hunt.
The findings are similar to numbers cited by The National Council on Aging, which has completed about 3,000 T&I default counseling sessions since February.
More than 80% of NCOA’s clients fall below 200% of the federal poverty level, say Barb Stucki, vice president of Home Equity Initiatives at NCOA, and Elizabeth Rose, who heads the T&I default counseling program, says that on average they owe their servicers more than $6,000 in T&I advances.
Thanks to counseling, many have embarked on repayment plans.
“We’re certainly helping people avoid foreclosure in the short term as well as the long term,” Hunt says.
However, the counseling is intensive, with initial sessions lasting an average of one and a half to two hours, and sometimes requiring a second, third, and even fourth session, says Hunt. All of this must somehow be paid for, even though housing counseling funding has been slashed by $88 million. (A recent Senate subcommittee appropriations bill would reinstate about $60 million of HUD counseling funding into the fiscal year 2012 budget, which would include HECM-related counseling.)
For now, CredAbility is drawing from available HUD funding, but Hunt says that depending on overall demand for service, those funds will likely be exhausted soon. Other counseling organizations are facing the same problems.
Historically, NCOA has not charged its clients upfront for counseling, says Stucki, adhering to HUD mandates that those who are below 200% or more of the federal poverty level receive free initial counseling, with fees added to origination costs once the reverse mortgage closes. However, as around 20% of clients receiving pre-application counseling never close on a loan, Stucki says this is an “unsustainable business model,” and says NCOA may have to begin charging for their services upfront.
Both Hunt and Stucki have found servicers to be accommodating in their dealings with seniors, showing a willingness to work with borrowers to establish repayment plans.
“In this [reverse] market, everyone’s committed to doing anything we can to make sure seniors can stay in their homes,” says Hunt.
Written by Alyssa Gerace