After a reverse mortgage borrower in Colorado was nearly foreclosed on twice for running afoul of the Home Equity Conversion Mortgage (HECM) program’s occupancy requirement, the impacted constituent’s congressman and the U.S. Department of Housing and Urban Development (HUD) intervened to halt the action.

This week, that congressman — Rep. Joe Neguse (D-Colo.) — announced that HUD has agreed to change the practices that govern mortgage foreclosures in the areas impacted by the natural disaster that nearly cost the impacted constituent his home, the Marshall Fire, which burned more than 6,000 acres and caused an estimated $513 million in damage.

RMD reached out to HUD for details on what policies have been implemented in response to this incident, and they recently offered details.

HUD response

Originally, a HUD spokesperson told RMD at the time a second foreclosure on the borrower was attempted that they were “implementing new safeguards in its technology systems to ensure that homeowners with [HECMs] do not face foreclosure as they seek to recover and rebuild following disasters.”

HUD clarified this week that its actions in response to the incident are in recognition that the foreclosure should not have taken place, according to a spokesperson.

“When we became aware of the incident that occurred with the reverse mortgage borrower in Colorado, in addition to addressing that issue specifically, we also sought to ensure that similar events did not occur in the future as HECM borrowers seek to recover and rebuild following a disaster,” the spokesperson said.

The new safeguards are largely focused on the Home Equity Reverse Mortgage Information Technology (HERMIT) system, which was launched in 2012 to improve the processes associated with the endorsement of HECMs, as well as the processing of servicing and claims within HUD.

“Toward that end, we have implemented additional safeguards within the [HERMIT] System to prevent inappropriate foreclosure starts for borrowers impacted by a disaster. Properties located in a disaster-impacted county are now flagged in the HERMIT System so that when a due and payable request is received by our servicing contractor, the reviewer is alerted to review the circumstances of the borrower and loan to ensure that the disaster is not the cause of non-occupancy or due and payable event.”

While this is the initial measure HUD has taken in an effort to minimize these instances in the future, HUD also said that the potential for future action and policy modification is possible and is currently being explored.

“We are also assessing our current HECM servicing policies to determine potential changes that may be necessary to ensure that HECM borrowers are afforded the time and assistance they need as they recover from natural disasters,” the HUD spokesperson said.

When reached, National Reverse Mortgage Lenders Association President Steve Irwin reacted favorably to the actions HUD has taken in this matter.

“NRMLA applauds the system enhancements and further consumer protections,” Irwin told RMD in an interview.

Recent history

The matter is still a source of debate in Colorado. State legislators recently passed a bill, “Reverse Mortgage Repayment When Home Uninhabitable,” that would extend the time allowed for HECM borrowers impacted by natural disasters to be out of their homes. The bill would extend the time from one to three years.

It was sent to the desk of Gov. Jared Polis on May 5 after being spearheaded by Rep. Kyle Brown (D), the representative of the reverse mortgage borrower impacted by the issue in this instance. The bill is co-sponsored by Rep. Brown and Rep. Naquetta Ricks, who represents the state’s 40th district.

Rep. Brown told RMD in March that extending the time period would better align reverse mortgage allowances with other industries, like insurance.

“It takes a while for folks to rebuild their home,” Brown said. “And so, even though I know the federal protections are for about a year, insurance companies generally give people two years where they’re paying for what’s called ‘alternative living expenses.’ So they’re expecting people to be out of their homes in the event of a total loss for up to two years at least. So, I would encourage the federal government to consider similar protections.”