New York Regional NRMLA Conference Offers Useful Information – Part THREE – The Technical Default Process

Day Two of the NRMLA conference provided a useful session by Lorraine Geraci on the art of communication with seniors, with a discussion on the physical aspects of aging and a caution to avoid stereotyping older people.

The second workshop of the day gave a detailed look at technical default presented by representatives of HUD, RMS reverse mortgage servicers, and CredAbility reverse mortgage counseling agency.

Taxes and insurance payments made by reverse mortgage borrowers are tracked by the servicer through a third party.  If they are in arrears, the borrower is contacted within 30 days to discuss cure options:  the overdrawn amount can be paid back on a payment plan, the entire loan can be repaid, or the borrower can execute a deed-in-lieu of foreclosure.

HUD has a program to provide default counseling.  Upon review of the borrower’s budget, a deficit is usually found which the counselor attempts to help rectify.  Borrowers are referred to agencies which provide benefits and are encouraged to apply for available help such as SNAP (food stamps), free cell phones, and home sharing options.  The borrower can usually find $200 in savings in this way.

Many seniors pride themselves in their self sufficiency and are reluctant to participate in public assistance until long after the point at which they qualified.  It often takes three or more sessions with a counselor to achieve maximum improvement.  If money cannot be found through savings in the budget, counselors then discuss asking children or grandchildren for help in meeting budget deficits or in moving to alternative housing.

Loan originators are encouraged to provide information at the time of the initial application about tax reductions, etc, that may be available to the senior borrower.

Of the approximately 1400 default counseling sessions done last year, half were able to successfully get into a repayment plan.

Case Study:

A pilot program in the Philadelphia area has been instituted to help guard against the danger of HECM foreclosure. They began with date they had:  borrowers whose loans were already “due and payable”.  Contact was attempted, first with a telephone call, then a letter, and finally a visit to the property.  A counselor assists with enrollment in benefits programs and all efforts are made to keep the borrower in their home.

The help of HECM servicers was enlisted to obtain data on defaulted borrowers not yet due and payable.  These seniors are enrolled in benefit programs, new less-expensive homeowners’ insurance is put in place, live-in family members are asked to commit money to pay a part of expenses, TV services are bundled into more economical packages.  Perhaps most importantly, the repayment plans can be extended from one to two years, offering flexibility to meet goals more successfully.

Mark Helm from RMS servicing said that 6.7% of their HECM portfolio is currently in tax and insurance default.  75% of these borrowers began with a “constructive default”: they had been in arrears on their taxes and had let insurance lapse before the beginning of the loan.  The majority are insurance defaults.  34% of borrowers in default are on a payment plan now, and if they fail to keep up repayments for 120 days, they are given a second chance.  Of the borrowers on a payment plan, 77% succeed in bringing their account up-to-date.

Of all the defaulted borrowers that are contacted, a number are non-responsive to letters and calls, but an inspection visit can often lead a borrower to begin repayment.  Sometimes an inspection may find the property vacant, in which case a short sale is attempted before foreclosure.  Multiple extensions may be granted.  The usual time frame from “due and payable” to foreclosure is 6 months, with 90-day extensions granted.

The recent rise in home values may offer a chance for borrowers to do a HECM-to-HECM refinance to boost loan proceeds.  Although national home values are reported to be up 10%, HECM REO values are only up 3% due to maintenance issues, making this potential option less viable for some.