Reverse mortgage counseling remains a critical component of the reverse mortgage transaction, but there are certainly issues to address across the lifecycle of the loan. Brenda Grauer, a reverse mortgage counselor with Housing Options Provided for the Elderly (HOPE), Inc. based out of St. Louis, Mo. HOPE says that it sees upwards of 3,000 clients per year for HECM counseling sessions, and is the only HUD housing counseling national intermediary that focuses exclusively on reverse mortgages.
To better understand the current landscape of HECM counseling, Grauer presented about issues she and others in the space are seeing on both the origination side of the transaction as well as the default side during an August meeting of the HUD Housing Counseling Federal Advisory Committee. RMD previously provided coverage on perspectives shared during origination, and now turns its attention to the default side.
Limited options available for borrower assistance
The first key default issue in the reverse mortgage space from the perspective of Grauer is that resources for borrowers experiencing a default are not plentiful enough.
“We don’t have the opportunity for loan modifications,” she said. “[There are a] limited number of people getting payment plans, there are restrictions on when those payment plans can be offered. And while they can be up to 60 months — five years — HUD does give discretion to lenders to decide when to offer those repayment plans.”
One potential restriction involves how much the borrower owes. If they are in a situation where they owe as much as the appraised value of the home and are placed in a no-equity or potentially upside-down position, then they are not offered repayment plans at all, Grauer explained. There could also be issues of interpretation from reverse mortgage servicers, she says.
“We have situations where individual servicers are changing their interpretation and programs and opportunities that they offer to homeowners who have reverse mortgages that are in default,” she says.
For situations where a borrower owes at or more than 98% of the maximum claim amount at the time they took the reverse mortgage and is deemed ineligible for a repayment plan, their situation has been exacerbated by the pandemic, Grauer explained.
“During COVID, you had borrowers who were in default where the servicers got a forbearance,” she said. “During the forbearance, their loan balance increased to the point where now that they’re coming out of forbearance, their loan balance may even exceed the appraised value of their home at the time they got the reverse mortgage, making them ineligible for a repayment plan.”
Housing Assistance Fund issues
While the potential for the Housing Assistance Fund (HAF) to serve reverse mortgage borrowers behind on their property taxes remains high, consistent issues with the program and its fragmented rollout and administration between 50 disparate state programs has caused other underlying issues.
“We have not only some states that are are not allowing housing assistance funds to be used for reverse mortgage situations, but also where homeowners don’t think they qualify because they don’t see that they necessarily had a COVID-related issue that got them into default,” Grauer said. “They don’t necessarily recognize that they may have had a family member pass away or lose a job, which then caused them not to be able to pay their property taxes or homeowners insurance. [They may have lost] a renter who couldn’t pay the rent.”
Other issues counselors are seeing relate to a delay in the implementation of HAF funding, which has been observed over the past year at the state level. Education is also lagging, Grauer explained.
“[There is a] lack of information outreach, comparing it to the Making Home Affordable situation back in the Great Recession when you had PSAs all over the place,” she said. “And you’ve also got counselors who need more training in this area, particularly with HECM default borrowers, which is one of the things that we’ve tried to work on with our demonstration project over the last several years with Retirement Research Foundation. So those are the main things that we’re seeing.”
Servicers have echoed some of the concerns related to borrowers’ lack of awareness regarding their qualification for HAF funding, with representatives from reverse mortgage servicing companies relating to an audience of industry professionals earlier this year that if an originator is in communication with a borrower that is either in or near default, providing greater information about HAF funding if available in a borrower’s state can make a big difference to curing that default.
“I just want to tell you that [the HAF] is an absolute godsend to people who have run out of money and cannot pay their taxes and insurance,” said Leslie Flynne with Reverse Mortgage Solutions(RMS)/PHH Mortgage Corp. at a reverse mortgage industry event in May. “It’s a gift from the U.S. government. All they have to do is apply, but unfortunately, we can’t get borrowers to apply. It’s unbelievable, but what we need you to do [is get your affected borrowers to apply].”