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Horse out of the barn? Industry Leader Update

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Reverse Mortgage Tax & Insurance Defaults

Is the proverbial “horse out of the barn” when it comes to Reverse Mortgage Tax & Insurance Defaults? A problem that was quietly brewing for more than a decade grew into glaring issue with the crash of housing values in 2007 & 2008. Many borrowers hit hard financially by the economy could not or chose not to pay their property taxes and insurance and thus placed themselves in a position to default on their reverse mortgage.

Reverse Mortgage Tax & Insurance Defaults

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Editor in Chief: HECMWorld.com
 
As a prominent commentator and Editor in Chief at HECMWorld.com, Shannon Hicks has played a pivotal role in reshaping the conversation around reverse mortgages. His unique perspectives and deep understanding of the industry have not only educated countless readers but has also contributed to introducing practical strategies utilizing housing wealth with a reverse mortgage.
 
Shannon’s journey into the world of reverse mortgages began in 2002 as an originator and his prior work in the financial services industry. Shannon has been covering reverse mortgage news stories since 2008 when he launched the podcast HECMWorld Weekly. Later, in 2010 he began producing the weekly video series The Industry Leader Update and Friday’s Food for Thought.
 
Readers wishing to submit stories or interview requests can reach our team at: info@hecmworld.com.

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7 Comments

  1. Impound account at closing for the est’d years we figure for the length of their lives in the home. If we cannot do that, please explain why.

    • Terri,

      First, we cannot do that presently. Lenders have no right to withhold proceeds from borrowers unless it is granted by law, regulations, rulings, or by the program regulator.

      In science there is the old adage: “Even if we can do it, should we?”

      Applying the adage to your suggestion, why impound accounts? They are very expensive. The loan goes up by the amount taken and accrues interest from funding forward. The little interest they may pay does not nearly offset their cost. That is a costly solution when a far less costly solution will do, set asides like the servicing fee set aside accounts which have been in the industry for years.

      Second, no one knows the length of “their lives.” How would you determine that? Using the HECM estimate, using doctor physicals and from there MetLife actuarial estimates, or using another approach you failed to identify? How is it you propose to determine life expectancy?

      Third, why does it have to be for life? With fixed rate HECMs it is easy to determine when assignment is scheduled to take place. Why not use that timeframe for lenders?

      Adjustable rate HECMs are a different story. Perhaps 80% of the life expectancy used in the TALC calculations would suffice.

      But to avoid any unnecessary draconian impact, I suggest using the methodology developed by NRMLA in its June letter to Ms. Karin Hill at HUD. However, instead of life expectancy, I recommend using the periods presented in the two paragraphs immediately preceding this one.

      In any case, until HUD grants the right to lenders to mandate set asides or more costly escrow (or impound) accounts, lenders are not permitted to take the course of action you suggest.

  2. Thank you! Very helpful.
    Happy Holidays Everyone!

  3. This is a bigger issue than defaulting on a Reverse Mortgage. I see it as a mere reflection of our society in general…seniors are finding it more and more difficult to meet rising costs while on a fixed income. Cities, counties, states need to address the issue of helping seniors by taking measures to waive taxes in some cases, at certain ages, etc. It would be more economically responsible for the state, county to pay $2,000 for a senior’s prop. taxes than to put them on Medicaid and in a home.

    • Nanci,

      Sometimes deferring or forgiving the tax due could be just putting off until later what should be done now. But it is also very true many do not want to face many of the harsh realities we do in this era and forgive debt to avoid more costly solutions.

      One thing we all know, decisions today are much harder than they were five years ago.

  4. why is it that 10% or less makes all the rules, regulations and laws and therefore eliminates some of the good people from programs they need ???? seems like the fix is always an over kill when its a government fix… in there indeavor to make something 100% they will reduce it below the 90% …….

    • Cliff,

      MetLife is not the government yet many in the industry believe its financial assessment underwriting standards are draconian. Care to respond?


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