The personal side of a reverse mortgage T&I default

The T&I default story includes many, individual vignettes like the one in New Hampshire, where an elderly woman is stuck between granite and a hard place, unable to pay her tax and insurance bills and, as a result, now receiving collection notices from her reverse mortgage provider. That provider is demanding repayment of more than $37,000 to cover back taxes and insurance on the property. It was appraised in 2006 – when the transaction took place – at $1.2 million, but now is worth less than the $525,000 already obligated to the lender for unpaid T&I, fees and the original outlay – all compounding regularly.

According to Paul Singleton, a Boston-area reverse mortgage specialist, who is familiar with the case, the lender has given the woman “30 days to pay or they will foreclose.” He adds with some drama: “She is 75 and does not know what to do and has no one to turn to.” After an inquiry from RMD, a spokesperson for the bank said it had initiated more personal contact with the woman, but would provide no other information.

Industry professionals know well the serious and growing problem posed by T&I defaults. Indeed, HUD Inspector General auditors estimated earlier this year that 20,000 seniors – affecting 4 percent of the FHA’s HECM portfolio – are behind on such payments. The IG’s office estimated these defaults could result in a loss of $1.47 billion to the FHA insurance fund if the defaulted HECMs end up in foreclosure and the properties are sold.

As to formal HUD guidance on T&I actions, an agency spokesperson tells RMD this week that “nothing yet” has been decided. “We are continuing to seek input from the industry as we develop guidance,” he reports.

Meanwhile, Singleton claims to be “surprised” by the pressure being brought to bear on the woman in this instance to pay her past due bills. “In my four years of doing reverse mortgages, I’ve never encountered” anything like this. “I guess this is going to start happening,” he surmises. Asked what remedies he might suggest, Singleton says the house should be put up for sale (short sale, if necessary). “Whatever it brings will go to the lender and mortgage insurance will cover the rest” of the outstanding balance owed. The unhappy homeowner says she might just stay and let the foreclosure/eviction process takes its course.

Not a happy story for anyone involved.

Written by Neil Morse

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