Reverse Mortgage Advisor Highlights Default Issues Needing Attention and More News

Published by
Peter Kavinsky

Reverse mortgage advice remains an important component of a reverse mortgage transaction, but there are certainly issues that need to be addressed throughout the life cycle of a loan. Brenda Grauer, Reverse Mortgage Consultant, Housing Options Provided for the Elderly (HOPE), Inc. from Saint Louis, Missouri. HOPE says it hosts over 3,000 clients a year for HECM consultation sessions and is the only HUD. Housing Advisory, National Intermediary Specializing Exclusively in Reverse Mortgages.

To better understand the current state of HECM counseling, Grauer spoke about the challenges she and others in the space are facing on both the transaction origin and default side during the August meeting of the HUD Federal Housing Advisory Committee. RMD previously provided information about the perspectives shared during creation and now turns its attention to the default side.

Limited opportunities to help the borrower

The first key problem with default in reverse mortgages, from Grauer’s point of view, is that there are not enough resources for defaulting borrowers.

“We don’t have the option for loan modifications,” she said. “[There are a] limited number of people receiving payment plans, there are restrictions on when these payment plans can be offered. And while they can be up to 60 months – five years – HUD gives lenders the power to decide when to offer these repayment plans.”

One of the possible restrictions concerns the size of the borrower’s debt. If they are in a situation where they owe as much as the appraised value of the house and are in a position without capital or potentially in an inverted position, then they are not being offered repayment plans at all, Grauer explained. There could also be interpretation issues on the part of reverse mortgage service companies, she said.

“We have situations where individual service providers change their interpretation, the programs and the options they offer to homeowners who have reverse mortgages that are not being fulfilled,” she says.

In situations where a borrower is owed at or above 98% of the maximum claim amount at the time of obtaining a reverse mortgage and is deemed ineligible for a repayment plan, Grauer said, their situation is exacerbated by the pandemic.

“During COVID, you had borrowers that were in default and service companies were getting leniency,” she said. “During abstinence, their credit balance has increased to the point that now that they are out of patience, their credit balance may even exceed the appraised value of their home at the time they received the reverse mortgage, making them ineligible for repayment. plan.”

Housing Assistance Fund Issues

While the ability of the Housing Assistance Fund (HAF) to serve reverse mortgage borrowers who have not paid property tax remains strong, persistent problems with the program and its fragmented deployment and administration across 50 disparate government programs have caused other major problems.

“We not only have some states that do not allow the use of housing assistance funds for reverse mortgages, but also those where homeowners do not think they qualify because they do not see that they necessarily had a problem related to COVID that arose. them into default,” Grauer said. “They don’t necessarily realize that they could have had a family member die or lose their job, which would have prevented them from paying property taxes or homeowner’s insurance. [They may have lost] tenant who couldn’t pay rent.”

Other issues that consultants are facing are related to the delay in the implementation of HAF funding, which was seen last year at the state level. Education is also lagging behind, Grauer explained.

“[There is a] lack of outreach, comparing it to Make Home Affordable during the Great Recession when social media ads were everywhere,” she said. “And you also have consultants who need more training in this area, especially with defaulted HECM borrowers, which is one of the things we’ve been trying to work on in our demonstration project over the past few years with the Pension Research Foundation. So those are the main things we see.”

Servicers have echoed some concerns about borrowers’ lack of awareness of their qualifications for HAF financing, with reverse mortgage servicers speaking to an audience of industry professionals earlier this year about how if an originator communicates with a borrower who is either in default or close to it, providing more details on HAF funding, if it is available in the borrower’s state, could go a long way towards resolving this default.

“I just want to tell you that [the HAF] is a godsend for people who have run out of money and can’t pay their taxes and insurance,” said Leslie Flynn of Reverse Mortgage Solutions (RMS)/PHH Mortgage Corp. at the reverse mortgage industry event in May. “This is a gift from the US government. All they have to do is apply, but unfortunately we cannot force borrowers to apply. It’s incredible, but what do we need you to do [is get your affected borrowers to apply]”.

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