3 Things Reverse Mortgage Originators Should Know About Servicing During Coronavirus

Reverse mortgage servicing has seen a lot of guidance coming down from the federal government recently due to the ongoing effects of the COVID-19 coronavirus pandemic. Because of this, servicing professionals answered a series of questions related to concerns that loan originators might have about servicing during the current national emergency, answering them in a servicing “town hall” webinar hosted by the National Reverse Mortgage Lenders Association (NRMLA) on Tuesday afternoon.

Among some of the highlights of the larger discussion include how a borrower setting up a direct deposit account for payments can help avoid issues related to draw requests, how due & payable submissions can also apply to non-borrowing spouses (NBS) on a particular loan and

Direct deposit can help avoid draw issues

Draw requests are usually able to be processed by servicers upon the receipt of a form by traditional mail or by email, but the ongoing effects of the pandemic may make it difficult for seniors to access and send a draw request form by either of these methods. This is where some additional exceptions are being entertained, according to Gail Balettie, SVP of borrower care and HUD & investor relations at Celink.

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“One question that’s come up in this pandemic is about borrowers who are unable to get out to the post office and mail us a draw request, or those who don’t have the ability to fax or email. We have entertained some exceptions for verbal draw requests. As servicers, we will consider that,” she explains. “I want to stress that each situation is unique and has to be evaluated by the servicer including things like the dollar amount requested, whether or not the borrower has direct deposit, etc. And of course, we’ve got to be able to talk to the borrower and identify them clearly over the phone.”

If the borrower is facing a particularly tough time related to making a draw request, they should be advised to contact their servicer if one can’t be submitted in writing. This is where the additional encouragement for loan officers comes from in terms of how a borrower receives a requested draw.

“I know we have a lot of loan officers, originators on the phone. So I wanted to take this opportunity to ask you guys to please encourage direct deposit set up at closing,” she says. “It is so much easier and faster, especially in a situation like now, for us to get the funds to them more quickly and not subject to the post office and their delivery times. So please, whenever possible, please encourage your borrowers to set up direct deposit at the closing table.”

Balettie elaborated on the helpfulness that direct deposit can provide by saying that it should come up multiple times during the origination process.

“I would say [to bring up direct deposit] during the entire origination process,” she says. “Especially if the origination process is taking longer than anticipated, then I would get the thought planted in their head upfront so that they can be ready for that. And then of course, right before closing.”

Non-borrowing spouses are eligible for due and payable request delays

At the beginning of April, HUD published Mortgagee Letter 2020-06 which instructed reverse mortgage servicers to delay due and payable requests on loans for a period of six months for borrowers that request such relief, since an American at risk of losing his or her home would enhance the economic shock of the pandemic.

The ML outlines that this relief is available to any borrower making such a request through October 30, 2020 and explains that HUD reserves the right to offer an additional six month extension after that if approved by HUD.

What some originators may not have realized is that the provision allowing for a six-month delay of the due and payable request also applies to non-borrowing spouses (NBS), a specific form of relief that HUD implemented according to Leslie Flynne, SVP of loan servicing at Reverse Mortgage Solutions (RMS).

“The one thing that loan officers might be interested in is that these six-month extensions also apply to non-borrowing spouses,” she says. “We know that historically, it’s always been a traumatic time for non-borrowing spouses immediately after death, facing the fact that their loan has become due when they [may be receiving] demand letters. We are very fortunate that HUD thought of this.”

Because a death is always involved in the equation of an NBS’ situation, they are able to call in and request an automatic six-month extension, Flynne explains. This could provide an element of very necessary relief particularly for NBS who may be personally impacted by the effects of the pandemic.

Servicers must comply with delay requests, the meaning of ‘automatic’

The guidance handed down by HUD in relation to the due and payable requests is very clear, and provides few room for exceptions to the requirement that a borrower’s request to delay the due and payable request must be honored before October 30 of this year, according to Rex Lamb, SVP of risk and compliance at Celink.

“For borrowers that are not yet due and payable – so they’re in default, but not yet been called due and payable by HUD for taxes or insurance defaults or occupancy issues – they can call their servicer and request an automatic six-month extension to the servicer’s deadline to request due and payable,” Lamb explains. “All the servicers need to do is document in their servicing system that the borrower requested that, and that request to HUD will then go on hold for six months. Again, we encourage the borrowers to call early. They should be getting notices when they receive [things like] a property charge delinquency notice or their monthly statement. Either of those items will include information on how to contact the servicer.

This is a request that must be honored, and the terminology when used is very literal, according to Leslie Flynne.

“The word ‘automatic’ really means automatic,” she says. “If the borrower calls, we as servicers and investors must give them that six month extension. Otherwise, during this period of time, they’re protected and as long as they ask before October 30, they’ll be fine. But after October 30, HUD’s granting of six-month extensions will sunset, and then we’ll be back to the regular business. Unless this is extended, and we don’t have any information that it would be extended. So, be sure and inform people that they don’t need to worry. HUD has provided for an extension for them should they need it.”

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  • Thanks to NRMLA for hosting a call on these timely issues.

    In addition, thanks to Gail Balettie (Celink) for reiterating the proper application of partial prepayments as well as the corresponding increase in the Net Principal Limit for open-end HECMs.

    If a homeowner with an adjustable-rate HECM makes a voluntary partial prepayment, their loan balance is reduced and their net principal limit rises. Homeowners with the ability to make periodic prepayments need to be reassured that this is how HECM ARMs are properly serviced.

    • Dan,

      Great points!

      Sometimes, it seems some servicers are unfamiliar with the difference between open ended (adjustable rate) HECMs and closed ended (fixed rate) HECMs when it comes to partial prepayments and increasing the principal limit on open ended HECMs. Hopefully, your comment enlightens and focuses attention on curing this particular problems.

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