MortgageReverse

HUD Meeting With Servicers, HECM Taxes and Insurance Default Guidance Coming

The Department of Housing and Urban Development (HUD) is scheduled to meet with reverse mortgage servicers in Washington on Tuesday to discuss taxes and insurance defaults according to several people briefed on the meeting.

The gathering comes less than two weeks after an audit by the HUD Office of Inspector General found nearly 13,000 HECM loans were in default from failure to pay taxes and insurance.

The agency is expected to issue formal and clear guidance for handling the defaults within the next 30 days according to Vicki Bott, HUD deputy assistant secretary.  ”We certainly have to evaluate the delinquencies and capabilities of seniors to get on valid prepayment plans,” she said in an interview with National Mortgage News (NMN) last week.

According to the HUD OIG report, the agency routinely granted foreclosure deferrals because it was unwilling to foreclose on senior citizen borrowers.  HUD claimed it was developing policy on how to handle the loans, but had not given servicers procedures for curing the defaults.  As a result, servicers held the loans and paid borrower’s taxes and insurance premiums totaling more than $35 million.

When HUD publishes the guidance, servicers and counselors are expected to seek the support of local government officials and family members to help seniors get back on track.

Additionally, NMN says that FHA wants to adopt policies to prevent seniors from getting into HECM loans if they do not have the long term resources to make T&I payments.  These policies would be issued as part of a proposed rule for public comment.

HUD has hinted for some time that a credit underwrite for reverse mortgage borrowers is a possibility, so it wouldn’t come as a shock to the industry.  Lenders would be required to conduct a financial assessment of borrowers to ensure they have the ability to meet the financial obligations of the HECM.  If necessary, the lender may require borrowers to set up an additional set aside to meet those obligations.

During a time of shrinking principal limits, an additional set aside would decrease the amount of funds available to borrowers, but it could be necessary to limit the number of HECM t&i defaults.

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