FHA Finds Some Borrowers More Likely to Default on HECM Tax and Insurance

Borrowers in HECM default share some common characteristics, the Department of Housing and Urban Development reported to attendees of the National Reverse Mortgage Lenders Association conference in Boston last week.

Reporting on data compiled in recent months following Mortgagee Letter 2011-01, HUD’s Colin Cushman, director of portfolio analysis, shared some of the department’s findings.

The HUD research shows that borrowers who are likely to default are the younger borrowers, in the 62-65 age range. Single males are most likely to default while couples are least likely, and those with home values that are higher than the area median value are less likely to default.

Another significant observation noted by HUD is the probability of default increases over the first four years of the HECM loan, then declines over time. Additionally, those borrowers with high initial draws (as a percent of the initial principal limit) have a higher likelihood of default.

Regionally, some areas have much higher rates of default than others. In Florida and Texas, there is a higher incidence of default with respect to the number of loans than in other states. In California, default is less common. The difference, a HUD representative noted, may stem from tax rates that vary state to state.

The department also found that there is an even split between those who are in default for taxes only, those who are in default for insurance only, and those who are in default for missing payments on both tax and insurance.

Written by Elizabeth Ecker



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