With HECM Taxes and Insurance Guidance Coming, Industry Prepares to Assist

During the first week of January, the Department of Housing and Urban Development will publish their highly anticipated guidance to address an estimated 13,000 HECM reverse mortgages that are in default from a failure to pay taxes and insurance.

The guidance is expected to rely heavily on assistance from housing counseling agencies and HUD has said it plans on training 125 counselors specifically on working with this group of HECM borrowers.

“All parties involved have been working for a while on an intensive counseling program to assist HECM borrowers in technical default identify resources to help them cure their default,” said Peter Bell, President of the National Reverse Mortgage Lenders Association.

The industry also established a workgroup that includes some of the largest lenders and servicers who contributed $130,000 to develop materials and best practices through the National Council of Aging (NCOA).  Sources tell RMD the development phase is almost finished and NCOA is expected to start reaching out to a small subset of borrowers and counseling agencies with the materials next week.

“The purpose of the project is to not only fine tune the whole process, but also to gauge how successful these counseling sessions may be when the mortgagee letter is issued,” said one executive who is involved with the group.

Part of the guidance from HUD will require use of the NCOA’s Benefits Check Up tool to help borrowers find assistance that allows them to lower their monthly expenses. Additional support could come from other places as well.

“There might be assistance available from local programs, charitable organizations or family members,” said Bell.  “In some cases, it might be a matter of finding a new insurer to underwrite the property.”

Earlier this year, the Mortgage Bankers Association requested that HUD and the Treasury allow part of the $3 billion in assistance provided through the Hardest Hit Fund and Emergency Home Loan Program to help seniors cure their defaults.

Of the funds, $2 billion was provided to help homeowners struggling to make their mortgage payments due to unemployment and the rest is part of HUD’s emergency homeowners loan program that is operated through state and non-profit entities.  The emergency loan program provides non-recourse and deferred payment loans up to $50,000 to assist borrowers with mortgage payments as well as taxes and insurance.

Despite what seems like a perfect fit, seniors don’t qualify for either program.  The hardest hit program requires the loss of a job and the emergency loan program is restricted by law to address borrowers with reductions in income due to unemployment, underemployment or medical conditions.

With so many people struggling today, one would think the programs would’ve taken off quickly but it’s not the case.  According to the Detroit Free Press, the state of Michigan was given $498.6 million of support through the program and only $2.4 million has gone to 554 homeowners since July.

Because the majority of HECM defaults have a balance of less than $5,000, even a small piece of the hardest hit programs could have a big impact.  One industry executive told RMD that $60 million of support from either fund could save 20,000 seniors from foreclosure.  The person deemed the amount the most “liberal” estimate, meaning it could be even lower.

But even with the restrictions, the MBA believed HUD could expand the program to cure HECM defaults.  “A significant number of seniors are unemployed/retired and may have suffered a reduction in income due to a medical condition and thus could qualify for the program,” they said in the comment letter.

When RMD followed up with the MBA, Vicki Vidal Associate Vice President of Government Affairs for the association said it has yet to receive a response.  “We know that HUD has very specific statutory restrictions on the use of their money,” she said.

Many in the industry felt the MBA’s request was late to the game and doubted it would succeed.  But when there is so much money being thrown around to support the “hardest hit” of the housing downturn, one would hope seniors would be eligible, especially if the money is just sitting there unused.

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