In his nationally syndicated real estate column recently, writer Lew Sichelman was asked by a 78-year-old reader with a three-year reverse mortgage whether there would be “any condition under which a financial organization issuing a tenure-type reverse mortgage can lower the payments to the customer without the customer’s permission.”
RMD reached out to industry practitioners with plenty of experience in such matters to help Lew answer the question and they delivered what amounts to a two-part “yes-no” answer.
“The lender cannot simply lower the tenure payment,” says Angella Conrard, reverse mortgage advisor, iReverse Home Loans, explaining that “mistakes are made,” and sometimes that does occur. “Payments cannot arbitrarily be lowered, it’s for life,” agreed Cliff Auerswald of All Reverse Mortgage Company.
However…”The HECM Agreement would permit payments to be stopped under certain conditions,” says Kenneth J. Klawans, President, iReverse Home Loans, LLC, “although” he adds, “I would be surprised if payments were reduced without any communication or notification.” What’s more, says a long-time industry player, “I am guessing that the customer could be delinquent in paying their taxes and insurance and the tenure payments would stop if the servicer notified the borrower of the default.”
“Yes,” says Sherry Apanay, senior vice president, Generation Mortgage Co., “the payment can be suspended or used to pay taxes and or insurance if they go into default, however; the borrower must still be notified.”
Another long-time but shy observer is more definitive. “Most certainly tenure payments can be changed without the consent of the borrower when certain conditions exist. If covenants are violated, such violations can have a direct impact on the line of credit or payouts. For example, if taxes or insurance are not paid, servicers can pay those items and adjust tenure payouts (or the line of credit) accordingly.” He goes on: “This is also true if a servicer must protect the position of the HECM note owner or FHA through payoff of a lien against the home arising after rescission with a higher priority than the HECM first or second lien against the same property.”
Like so many of these questions, it turns out, “the devil’s in the details.”