The reverse mortgage industry continues to face challenges and one of its more recent issues has been the treatment of borrowers who have defaulted based upon failure to pay their property taxes and insurance on their homes. The Department of Housing and Urban Development’s Office of Inspector General recently released a new report that states there are nearly 13,000 reverse mortgages in default due to failure to pay taxes and insurance.
According to the report, HUD routinely granted foreclosure deferrals because it was unwilling to foreclose on senior citizen borrowers, but the agency had no formal procedures. In May 2009, HUD alerted servicers that it would not accept foreclosure deferral requests after April 30, 2009, for loans in default due to nonpayment of taxes and insurance.
HUD and reverse mortgage servicers are currently in discussions on procedures for handling loans and borrowers who are currently in default. One suggestion being discussed is creating a formal credit underwriting process to ensure that reverse mortgage borrowers have the capacity and willingness to meet their obligations to receive a reverse mortgage.
“Given that the portfolio of defaulted loans had increased significantly, coupled with the rapid rise in the number of new HECM loans, it is crucial that HUD act swiftly to issue guidance on how to resolve the loans currently in default and implement policies to reduce or prevent future occurrences,” said the OIG.