Program Sheds Light on HECM Default Resolution Challenges

The Soft Landing Program, a pilot program led by the National Council on Aging and the National Reverse Mortgage Lenders Association, has gathered a wealth of qualitative data on reverse mortgage borrowers who are currently in tax or insurance default. The program, which initially aimed to span a three-month period, has been extended through May 2011.

Elizabeth Rose, project coordinator for HECM property charge loss mitigation counseling for National Council on Aging, shared program data with NRMLA West conference attendees in Newport Beach, Calif. on March 16.

According to the information shared by Rose, 26 borrowers are currently enrolled in the program, which works with four partner sites in Miami, Los Angeles, Detroit/Lansing and Houston. The program aligns with HECM servicers to identify those who are in default based on a time and/or dollar qualification; connects those in need with case managers; and works with borrowers to resolve the default issue or transition the borrower from his or her home, if necessary.

While the exact number of reverse mortgages in default is unknown, a 2010 report from HUD’s Office of Inspector General estimated the number is around 13,000. HUD is making an effort to collect reports from lenders on defaults; the first of those reports were collected in February.

Prior to HUD guidance in early 2011, “There was a real lack of clarity about what to do with tax and insurance defaults,” said Ryan LaRose, chief operating officer of Lansing, Mich.-based loan servicer Celink. “While the mortgagee letter from HUD in January may have been seen as bad news, now we have some direction and clarity and a framework to help borrowers.”

The borrowers in the program range in age from 64 to 95, with an average monthly income of $1,330. Other findings show that the highest amount owed is $32,000. Rose also shared data on the loan information of the borrowers. Most are lump sum borrowers and several are HECM for Purchase borrowers.

Of the 26 seniors in the program, 5 have cured their delinquency with case management; nine are facing transition out of their homes; and 12 are in the case management process.

The findings make a case for face-to-face work with seniors in default. Rose gave examples of three situations where the delinquency could be resolved from “thinking outside the box.” In one instance, Rose explained, in visiting the home of the borrower, the case worker looked around the home and noticed some valuables that were later appraised and sold to help work toward tax or insurance payments. In another case, a previously undisclosed medical condition was brought to light, leading to a tax exemption. In a third case Rose cited, a couple with a reverse mortgage was unhappy in their marriage and through case management, worked toward separation, which improved the default situation for one party. Each situation required working directly with the borrowers to determine a specific course of action and ultimately the defaults were resolved.

In terms of challenges the program has identified, “There can be difficulty reaching clients for enrollment,” said Rose. “Many phone numbers are disconnected. Often, [borrowers] may also be getting other collection calls, so they don’t answer or they will avoid calls.”

A challenge for Celink has been finding the right people to work in the program on the servicer side, who can provide skill sets both in customer service and as a collections capacity.

Overall, however, the findings shed light on some situations that can be resolved with program assistance, and some servicers say the HUD requirement to collect and report on tax and insurance default data can be seen as a good thing.

The outcome has been good, said LaRose. “It has been an extremely positive experience,” he said. “We were lucky enough to get a hold of borrowers and put them through the program. “It’s beneficial to hear from the third party who wants to help.”

“We all have the exact same goal: curing these delinquencies,” said Rose.

Written by Elizabeth Ecker

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