Mortgage bankers and the National Council on Aging are working on a pilot program to help older borrowers with reverse mortgages who have fallen behind on paying their property taxes and homeowners insurance.
Failure to pay taxes and insurance can result in a technical default on reverse mortgages and lead to foreclosure, though actual foreclosures, to date, have been rare.
But with large regional declines in property values — especially in Florida — it has become harder to resolve missed payments by refinancing. And obtaining insurance in some parts of the country has become difficult or expensive.
Auditors from the Department of Housing and Urban Development's Office of Inspector General last summer discovered that four servicers were making advances to cover missed payments on 13,000 FHA-insured home equity conversion mortgages.
The auditors' eye-opening report prompted the Federal Housing Administration to devise new reporting and workout requirements to get borrowers into payment plans. HUD last week issued new guidance in the form of an FHA mortgagee letter. The guidance includes a model "delinquency" letter that lenders should send to older borrowers who have missed payments. Among other things, the letter encourages them to take advantage of free counseling and work with their servicer on a payment plan. (HUD has earmarked $3 million to provide counseling.)
The National Reverse Mortgage Lenders Association and National Council on Aging are working together to provide special training to 125 counselors to help elderly people with tax and insurance problems. Half a dozen members of the lender trade group donated $130,000 in grants to the National Council on Aging to start counseling projects in four cities, according to the lender group's president, Peter Bell.
Bell said the servicers have identified reverse mortgage borrowers in those cities who could benefit from counseling.
At HUD's request, the lender group surveyed people with tax and insurance problems. In 70% of the cases, it found, the amount of missed payments or advances by servicers was less than $5,000.
"A significant number are not tax defaults, but insurance," Bell told National Mortgage News. Many of these problems occur in Florida and other states that have been hit by floods, hurricanes and fires.
Insurers have withdrawn from these markets, leaving borrowers unable to find new insurers. In some cases the carriers jack up the rates to a level that many older people cannot afford.
The lender association is talking with private insurance companies to cover these customers. It is also looking at state-backed insurance plans as a less expensive alternative to force-placed insurance.
Bell wants policies that require insurers to notify servicers if the borrower misses a payment. "That would allow the servicer to advance the payment on the existing policy so the policy does not lapse," he said.
HUD has spelled out the process for home equity conversion mortgages servicers to assist the elderly and arrange for a payment plan that gives them up to two years to cover missed payments. If a cure is not possible after following that process, the lender can call the loan and assign it to HUD.
"Some people think this might lead to foreclosures, but I don't see any of them in the very immediate future," Bell said.
Marc Helm, president and chief operating officer of Reverse Mortgage Solutions in Houston, called the FHA's guidance a "first giant step" toward dealing with the problem.
Helm said the mortgagee letter puts some parameters about what the FHA wants done in these situations, which until now was a gray area. But he is concerned about some of the guidelines for the repayment plan, which puts a 24-month limit on arrears over $5,000. "If somebody owes $10,000 worth of taxes, if they weren't able to pay it, I don't think they are going to be able to pay it back on a 24-month repayment plan."
For a particularly large advance, Helm would like to see an option that would let HUD grant a waiver to go over the 24-month time frame for a repayment plan. A repayment plan would work only if the borrower had the ability to pay the next year's tax and insurance when it is due, he said.
