Like the family secret no one wants to divulge for fear of embarrassment or worse, participants in the reverse mortgage sector reportedly are playing down the growing problem of seniors who forget, don’t know, or are unable to pay taxes and insurance on their properties. Unlike a forward mortgage, where “T&I” routinely is escrowed – that is, collected in advance by the servicer for future, timely payment to the proper recipients – no such uniform process is in place for reverse mortgages.
As a result, some loan recipients are not making those mandatory payments, causing ongoing problems and finally, one large headache when the reverse mortgage term ends.
“Currently, if servicers advance for taxes or insurance,” says Ryan LaRose, senior vice-president of reverse mortgages for Celink, Lansing, Mich., “they capitalize the advance to the loan balance, move the loan into T&I Default status, and then request approval from HUD to ‘defer’ calling the loan due and payable,” thereby avoiding having to foreclose and evict a senior borrower from their home. But, LaRose says, “This is [only] a ‘stop-gap’ process, until HUD and the industry can come up with a long-term solution to the T&I default issue.”
One industry leader says “HUD and Fannie Mae are leery about foreclosures on property for non-payment of taxes, because of the ‘social stigma’ involved.” This person explains that, up to now, the two agencies have been relying on rising equity values to cover their arrears. There are unconfirmed reports that Fannie currently has 9,000 loans in tax/insurance default, of which 2,000 already are over 100% LTV. One person familiar with this hushed problem, says of some reverse mortgage holders: “Nobody bothered to educate them on their fiduciary responsibilities and nobody looked to see if their monthly income stream would be sufficient for [T&I].” Calls to both HUD and Fannie were referred to media relations personnel who did not provide further information.
Neil J. Morse has been a communications professional working in the mortgage finance industry for more than a decade, currently specializing in the reverse mortgage sector. He can be reached at email@example.com