Last week, President Donald Trump announced that the U.S. Department of Housing and Urban Development (HUD) and the Federal Housing Finance Agency (FHFA) would be suspending all new and pending foreclosure and eviction actions for 60 days, in an effort to provide relief to homeowners and renters who have been financially impacted by the spread of the COVID-19 coronavirus.
The moratorium applies to all FHA Title II Single Family forward mortgage and Home Equity Conversion Mortgage (HECM) programs, according to a Mortgagee Letter issued after the president’s announcement was made. Servicers have shared their perspectives on the moratorium with RMD.
Reverse mortgage servicers respond
The reaction by the servicing side of the reverse mortgage business has been generally positive and understanding of the moratorium on foreclosures due to the current crisis related to the coronavirus pandemic, according to statements from two major reverse mortgage servicing companies who are in communication with RMD.
“As a servicer I am relieved that a moratorium on foreclosures and evictions has been granted and hope that it will be extended if necessary,” says Leslie Flynne, SVP at Reverse Mortgage Solutions (RMS). “Our borrowers and their heirs are disrupted by this pandemic, their stress level is at an all-time high during these foreclosure and eviction actions and now their health can be in peril.”
That’s not to say that the moratorium will be without costs to the business of servicing as well as in other sectors, but those costs are worth enduring in order to best position borrowers facing such actions since the economic impacts of the coronavirus pandemic are so widespread.
“The moratorium will have its cost such as additional taxes, insurance premiums, inspections, etc., and possibly lower liquidation values of the collateral ultimately,” Flynne says. “But in this very uncertain time we don’t need to add a human cost to the equation.”
Also sharing a belief that the correct decision was made under the circumstances is Celink, according to its President and COO Ryan LaRose.
“We feel that HUD made the right decision by placing a ‘hold’ on foreclosure and post-foreclosure eviction activity for a 60-day period,” LaRose told RMD in an email. “Obviously, this is a very challenging time for borrowers, servicers, attorney firms, courts, etc., so this 60-day moratorium provides some temporary relief for all parties.”
Celink is collaborating with its partners at organizations like the National Reverse Mortgage Lenders Association (NRMLA) and the public sector, along with clients and legal partners in order to comply with the directives as laid out in the Mortgagee Letter that announced the moratorium. It is also taking the actions of other regulatory agencies into account, LaRose added.
“We are working closely with NRMLA, HUD, our subservicing clients, and our attorney firm partners to implement the directives in this Mortgagee Letter,” LaRose said. “In addition, we continue to closely monitor what other actions HUD or other regulatory agencies may take in light of the unprecedented events that are occurring.”
Motivation for a reverse mortgage foreclosure
Foreclosure is often a routine proceeding in terminating a reverse mortgage loan after a borrower has left their home, according to the CEO and former president of the National Reverse Mortgage Lenders Association (NRMLA).
“When a borrower passes away and the loan balance exceeds the value of the home, there is little incentive for the heirs to take any other action,” says Peter Bell in written remarks submitted last year to the U.S. House of Representatives Financial Services Committee. “In other cases, there is no next of kin able to step in and handle a property disposition or payoff. Lenders must also act within HUD specified time frames in handling foreclosures, inhibiting their flexibility to work with borrowers in default.”
Based on 2019 servicing data, Bell and NRMLA shared that over 50% of reverse mortgage foreclosures are triggered by the death of the borrower, while 15% are attributable to non-occupancy when a borrower elects to move in with a family member or into an assisted living facility.
Under 7% of reverse mortgage foreclosures are due to defaults related to an inability for the borrower to keep up with their tax and insurance payments, Bell says in his remarks.