With home prices at sustained 7-year lows and continuing to fall in some regions throughout the U.S., market conditions have led to a slight perceived delay in servicing processes for reverse mortgage properties. The low values have caused slowed sales, and in turn, pressure on servicers, especially when working with foreclosed properties.
“We have seen an increase in the marketing time for REO properties, as well as estates struggling trying to sell the homes after the borrower has passed away,” says Ryan LaRose, chief operating operator for Lansing, Mich.-based servicer CeLink. “In some cases, because there is little to no equity remaining in the home, the estates are simply walking away and not trying to market the property after the borrower has passed away, as there is no incentive for them to do so,” he says.
Department of Housing and Urban Development regulations require that servicers list on their demand letter that they have 30 days to satisfy the loan or contact the servicer with their intentions, according to LaRose. However, if they can provide documentation that they intend to market the property, obtain financing to pay off the loan, or move forward in the process to sell, then HUD may grant time extensions to give the heirs up to one year from the time the borrower has passed away.
The delays have the potential to cost servicers more money if the loans are not assignable to HUD. Regulations prohibit assignment of the loan to HUD when the borrower has failed to abide by the covenants of the mortgage and maintain hazard insurance on their property.
The foreclosure delays vary across states, says Marc Helm, president and chief operating officer for Spring, Texas-based Reverse Mortgage Solutions, Inc. While RMS has not seen an increase in the sale time of REO properties, “I would agree it’s taken longer to get through foreclosure,” says Helm. In some states, such as Florida, it has taken substantially longer, he says.
“We have seen an increase in the percentage of appraisal-based HUD claims (which means that the property is not able to be sold during the first six months following the foreclosure sale) on REO properties,” says LaRose. “With that being said, there are some pockets around the country that seem to be performing better than others.”
Written by Elizabeth Ecker
