Prescriptive Guidance to Address HECM Defaults Coming says HUD Official

The Department of Housing and Urban Development met with the reverse mortgage industry last week to strategize on ways to resolve tax and insurance advances made by servicers on behalf of borrowers with reverse mortgages.

The issue was brought to light when the HUD OIG released a report showing that HUD failed to track almost 13,000 HECMs in default.  During a conference in Rhode Island, Vick Bott, Assistant Secretary at HUD told RMD they’re working working with the industry to make sure the strategy is a collaborative plan.

“We had good conversations with servicers last week,” said Bott. “The new standards will be more prescriptive, explaining how to get from A to B.” Bott hopes to release a Mortgagee Letter by the end of the month, which will focus around reporting delinquencies and when a due and payable loan can be presented to HUD.

According to people who attended the meeting, HUD provided a high level overview of what the industry can expect from a mortgagee letter on how to manage the estimated 20,000 to 30,000 HECM loans in default.  The guidance will provide a framework to servicers but also give them flexibility in handling the loans to determine when all loss mitigation options have been exhausted.

“This is good on one hand, but it could result in one servicer handling these loans completely different than another servicer,” said an executive from the meeting in DC.

When servicers told HUD the flexibility could result in different borrower treatment, the agency said it expects servicers to make multiple and serious attempts to cure the defaults.  No timeline was given about when servicers must proceed with a request to HUD for due and payable.

Additional Borrower Assistance

HUD is also developing a default counseling protocol with the five major agencies. Counselors will work with borrowers through the process to look at options available to satisfy the default balance or locate alternative housing options.

Initial funding for default counseling will come from HUD, but ongoing funding from the industry is needed to sustain it in the long term.

Along with the mortgagee letter, HUD said it will publish a proposed rule later this year for public comment to address preventative approaches for taxes and insurance defaults at the time of origination. The rule will have some type of financial assessment that could result in forced set asides, limiting payment plan options, or other proposals.

The industry will have a chance to comment on the proposal.

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