As part of its ongoing effort to keep tabs on loan servicers, the Consumer Financial Protection Bureau released a report this week that highlighted problems with the servicing of reverse mortgages.
According to the bureau, a recent examination brought to light the fact that some reverse mortgage servicers have issued misleading statements to the heirs of deceased reverse mortgage borrowers.
When a borrower passes away, the servicer is required to contact the heirs to notify them of their right to repay the loan or place the property up for sale. Alternatively, the property moves into foreclosure. In this instance, the Department of Housing and Urban Development allows for up to two 90-day extensions to grant the heirs time to make a decision.
But the CFPB found that “one or more” servicers sent insufficient information in this notice to the heirs.
From the report:
The notice stated that the loan balance was due and payable, but that the successor could qualify for an extension of time to delay or avoid foreclosure. The notice directed the successor to return an enclosed form stating the intentions for the property within thirty days. The notice also listed several documents that may be applicable to the successor’s evaluation, but did not direct the successor to submit any of the documents within a certain timeframe to be eligible for an extension.
The CFPB said that some heirs did not receive a complete list of all the documents needed to apply for an extension, or were not informed of the deadlines to do so. As a result, some returned the forms listing their intention to purchase or market the property, but they did not send in everything needed to apply for an extension from HUD.
The servicers, therefore, did not apply for the extension on their behalf, and in some instances foreclosure fees were levied or foreclosure proceedings took place despite the heirs’ stated intentions.
While the examiners determined this was not a legal violation, they did state that “it could pose a risk of a deceptive act or practice.”
The report goes on to say that the servicers in question agreed to improve communications with heirs so that the complete documentation and relevant deadlines were properly disclosed.