The NCLC recommends the CFPB & the FHA create these reverse mortgage servicing protections
After several years of servicing issues for both borrowers and their heirs reverse mortgage originators and lenders alike welcomed the news in March 2022 that Celink had been awarded the servicing of HECM loans held in assignment by the Federal Housing Administration. However, a history of previous servicing shortfalls from numerous servicers has led some to call for increased oversight and protections to prevent unnecessary foreclosures of HECM loans.
On February 6th the National Consumer Law Center published an article by Sarah Bolling Mancini entitled, “Unmet Promise: Reverse Mortgage Servicing Challenges and How to Preserve Housing Stability for Older Adults”. Mancini outlines several servicing shortfalls that may have led to avoidable foreclosures.
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“There are roughly 480,000 reverse mortgages currently outstanding in the United States.”, writes Mancini who notes this number will likely grow as baby boomers age. More importantly, she notes HECM borrowers who are delinquent on their property charge payments face hurdles in accessing the resources needed to satisfy the overdue charges to avoid a technical default and foreclosure. Mancini notes, “The crisis of preventable reverse mortgage foreclosures does not impact all communities equally. Historically, people of color have been more likely to take out reverse mortgages, due to the legacy of discrimination and policies that limited their wealth-building opportunities, and they are also more likely to end up in reverse mortgage foreclosure.”.
The NCLS’s full report (which we’ve included a link to in today’s show notes) provided several examples of where servicing failed HECM borrowers. Here’s one. Jean Reese, a 76-year-old African-American woman living in Philadelphia, fell behind on her property taxes during the Covid-19 pandemic. She made a payment arrangement with the city and also kept in regular contact with her HECM loan servicer. Despite these efforts in December 2019, the servicer paid the remaining property taxes she had arranged to pay with the city and also paid her future 2020 taxes. It’s a lengthy and complex story but in the end, Reese had to obtain legal assistance to conclude the matter and avoid foreclosure.
Drawing on their findings in the report, Mancini and the NCLC made four recommendations for FHA and the Consumer Financial Protection Bureau to help prevent avoidable foreclosures. The recommendations for the FHA include (1) Allowing flexibility with property charge loss mitigation policies, (2) Rescinding the due and payable status when loss mitigation is approved, (3) Allowing loans to be assigned to FHA while in an active loss mitigation plan, and (4) require a loss mitigation review. The recommendations to the CFPB include (1) the inclusion of reverse mortgages in the RESPA mortgage servicing rules, (2) working with FHA on effective reverse mortgage communications, (3) prioritizing reverse mortgage servicer supervision and enforcement, and (4) requiring prompt payoff statements.
The NCLC conducted a nationwide survey of senior advocates who handle reverse mortgage cases. Some of the more notable responses said that some servicers declared a homeowner was still in default despite them being already enrolled in a state or local tax deferral or repayment program.
Addressing the servicing issues outlined in the report only stands to strengthen the reputation of the reverse mortgage among older homeowners, senior advocates, and professionals. Or has Mancini put it to ‘fulfill the promise’ of the loan to help older homeowners age in place. What are your thoughts on the NCLC’s recommendations? Do you think these servicing reforms need to
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4 Comments
Very interesting. Is there a guideline which says a lender cannot begin foreclosure proceedings until six months have passed? I’m not sure there is something in writing which protects borrowers.
Hi Paul,
No, I don’t believe there is a direct reference to a 6-month timeline. In fact, HUD requires that the first step of the foreclosure (First Legal Action) begin 90 days after a default. Keep in mind, foreclosure timelines will vary by state, and states may require either a judicial, or non-judicial, foreclosure.
One of the biggest mistakes I hear in the field is loan originators telling an individual they have 12 months. NOOOOO! The borrower or heirs need to communicate with their servicer immediately.
Keep in mind, the servicer can request 3-month extensions. So long as the homeowner is making a reasonable effort to sell or refinance the property, HUD can grant these extensions in 3-month intervals with the entire period not to exceed 12 months.
Here is the language in HUD 4330 Ch 13-34:
“If the mortgagor or the mortgagor’s estate fails to repay the outstanding balance on a due and payable mortgage or if the mortgagor fails to deed the property to the mortgagee within the prescribed time, the mortgagee must begin foreclosure proceedings within 3 months. The Field Office may authorize the mortgagee to delay the beginning of foreclosure proceedings longer than 3 months if a sale by the mortgagor or the estate is in process. If the estate is making a reasonable effort to sell the property, these extensions should be granted in 3-month intervals with the entire period not to exceed 12 months (see sample extension letter to mortgage).”
Note that there is nothing in the above or note and deed of trust to stop the servicer from starting a foreclosure immediately, even if the foreclosure is based on false information. I have had more than one foreclosure process started based on a false claim one of my borrowers no longer lived in the home. In each case, I had no trouble verifying the borrower still lived in the home. I have had a servicer representative call me and not be able to even identify the correct loan he was calling about. The issue was with one of my borrower’s reverse mortgage and he thought he was calling about my reverse mortgage. I’ve had force placed insurance put on borrower’s homes that were properly insured because the servicer refused to properly verify insurance. We were able to verify the insurance in minutes. Every servicing issue I have helped a borrower resolve has been with Celink. I find Celink and FHA consistently unresponsive to servicing issues. Most people controlling the reverse mortgage industry have never had a reverse mortgage and have no real understanding of the loan from the borrower side. This is in contrast to the forward mortgage business where most people controlling the industry either have or had a forward mortgage. Old people understand what it’s like to be young because they were once young. Young people don’t understand what it’s like to be old because they have never been old. It’s hard to truly understand where you have never been.
Dan,
As a small aside, in California lenders can either pursue a judicial foreclosure or foreclosure through the trustee’s right to sell following an uncured default where the lender created (and the borrower signed it) and filed a trust deed on the property prior to the default.
There are only a handful of lenders that seek judicial foreclosure because of the much longer process and the related additional costs.
HOWEVER, just electing the trustee’s right of sale means that the lender give up any right to a judicial deficiency, meaning that pragmatically even a recourse mortgage automatically becomes nonrecourse by merely making the election..
Again the timetable for a foreclosure through the trustee’s right of sale is generally years less than judicial foreclosure.