Earlier this month, the Federal Housing Administration (FHA) released new guidance for borrowers and lenders on handling issues associated with delinquent property taxes and unpaid hazard insurance premiums. Failure to pay property taxes and insurance on reverse mortgage constitutes a default where the lender may either make those payment from reverse mortgage proceeds or advance those funds to protect their collateral interests. The guidance comes as lenders are facing increased advances which places the FHA Insurance Fund at greater risk but also reminds lenders and servicers that foreclosure proceedings should be the last resort when working with troubled borrowers.
“We understand that some senior citizens have not paid their taxes or insurance for some time and may be at risk of losing their home,” said FHA Commissioner David H. Stevens. “Today’s guidance is designed to establish a clear framework that protects both the homeowner and the lender who participate in our reverse mortgage program.”
The new guidance encourages servicers to direct borrowers to approved housing counselors who can provide free assistance to help them resolve the situation and avoid any foreclosure action. In an effort to avoid problems with unpaid property charges in the future, FHA recently modified counseling requirements to provider greater focus on educating borrowers about their responsibility to make timely tax and insurance payments.
For the full guidance, visit FHA’s Mortgagee Letter 2011-01