Reverse mortgages are not the same as their forward counterparts to those who broker and sell them, writes Celink CEO John LaRose in a Mortgage Orb article this week. That’s because the servicing of the loans is very different once the servicer takes over responsibility for the loan.
Tax and insurance compliance, timely payments and handling foreclosures due to the borrower’s passing away are some of the distinctions, LaRose writes, that make a substantial difference in the process. The loans themselves, too, require a careful look for anyone getting in to the business.
It is worth noting the differences between borrowers and servicers on the traditional forward side of mortgages from those on the reverse side. (For the purposes of this article, “servicer” also applies to “subservicer.”) Forward-side mortgages generally signal a course of growth and upward movement of the borrower. From first-time homeownership through the building of “dream homes,” forward-side mortgages are about upward mobility.
Equity earned with each investment leads to the next investment. A reverse mortgage, on the other hand, is about cessation of movement – it is about staying put and “aging in place.” Reverse borrowers, most of whom have invested wisely for a lifetime, are now desirous of declaring permanent residency. Through a reverse mortgage, they access the equity of their investment for any number of reasons: to stay in their home, to travel the world, to pay for unexpected medical costs – the reasons will be as varied and numerous as the borrower population.
The issues facing servicers on the forward side are receipt of timely payments from borrowers, escrow payments for taxes and insurance, and delinquencies and foreclosures, among others. Servicers on the reverse side deal with issues of making timely payments to borrowers, ensuring borrower tax and insurance compliance, and handling foreclosures mainly due to death. Needless to say, there are costly and mostly intangible benefits that define quality servicing of reverse mortgage portfolios.
…But reverse mortgages are not child’s play. The Federal Housing Administration’s Home Equity Conversion Mortgage is a highly complex mortgage product with fixed processes, and lenders must be sure that their borrowers are in the hands of trusted and respected professionals. Professional servicers in the reverse mortgage space will devote substantial resources on borrower care (e.g., customer service). They also must make sure all of the idiosyncratic and unique U.S. Department of Housing and Urban Development (HUD) guidelines are carefully followed. In some instances, if a deadline is missed by just one day, the HUD insurance for the product may be lost.
There is also another aspect to reverse mortgage servicing that permeates the sector: the death of either the borrower or his or her spouse. This is clearly the most difficult and traumatic situation servicers deal with on a daily basis. Servicers work with grieving family members, who run the gamut of needing gentle and guiding “hand holding” – advising them of their responsibilities regarding the loan – all the way to requiring the servicer to work alongside them for the next year to properly dispose of the property.
Written by Elizabeth Ecker