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The Rule of 95


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Senators urge HUD to better protect HECM heirs wishing to purchase home

reverse mortgage newsLast Wednesday two U.S. senators have sent a letter to HUD  calling for better enforcement of existing rules which may prevent foreclosure for heirs of HECM borrowers. Senators Barbara Boxer & Charles Schumer implored the agency to take measures to ensure heirs of a deceased borrower are not forced out of their homes illegally. At the crux of the matter is the rule of 95. According to the senator’s letter HECM lenders are required to offer heirs the option of satisfying the reverse mortgage by paying 95% of the home’s present appraised value. According to a recent New York Times article this option is not always offered. The article prompted senators Boxer and Schumer to write “ “The failure on the part of the mortgage companies to offer the option of satisfying the loan by paying ninety-five percent of the home’s appraised value unfairly penalizes a borrower’s family members and heirs, who are unable to obtain refinancing to pay off the loan.” While anecdotal evidence points to a problem the question is how wide spread it such a predicament?


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As a prominent commentator and Editor in Chief at, 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.
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  1. Never in 6 years have I had anything close to a foreclosure and that’s after writing over 300 REVERSE apps. Go after and eliminate the individuals causing these problems, not the entire industry.

    • Six years doesn’t seem long enough for any of your loans to hit the cross-over point. Would like to hear from someone who originated some HECMs > 10 years ago.

      • Mr. Warns,

        What does the cross over point have to do with this issue? Normally when we talk about HECMs and the cross over point, the cross over point has to do with when a HECM is first eligible for assignment. In that case, the cross over point is where the balance due is 98% of the original appraised value of the home. That event has absolutely nothing to do with foreclosure.

        Foreclosure is a different issue. It can occur even when there is substantial equity in the home. It is simply a legal procedure by which a mortgage note owner takes title to a home because the property owner(s) fails to take action on extension requests, payoff, sale, or transfer of the deed in lieu of foreclosure. However, following foreclosure, the borrower or heirs lose all equity since the lender (or FHA if the home is in assignment) now owns the home.

        Foreclosure is a greatly misunderstood issue in our industry; yet per Mr. Ryan LaRose, a very knowledgeable and well recognized and respected servicer in our industry, foreclosure has been the most dominant way for HECMs to terminate at Celink over the last few years. His article was published by Reverse Review last December and can be found at:

        Some talk about a different kind of cross over point and mean the point at which the balance due exceeds the current value of the home but in the world of HECMs that has absolutely nothing to do with foreclosures either. It can occur the day after initial funding (unlikely) or not at all; it not only depends on the balance due but also on the current value of the home. On the other hand if a HECM is in the due and payable status and its balance due is greater than the appraised “termination” value of the home, then foreclosure may result but only if the property owner fails to take action within required deadlines such as requests for extensions, payoff, transfer of the deed in lieu of foreclosure, sale, or short sale.

        The Cross Over Point related to assignment as to the minuend is simple to talk about since it remains constant, i.e., the appraised value of the home at closing but the subtrahend can vary greatly even at closing where minuends are exactly the same due to the age of the youngest borrower, the expected interest rate, and the amount of the principal limit borrowed. Subtrahends vary following initial funding based on the amounts actually borrowed over time, the amounts repaid (if any), the note interest rate, the rate of the ongoing MIP and to some degree how long the HECM has been active.

        Some HECMs reach their cross over point in less than five years and others may never reach it. In no case are originators nearly as familiar with cross over points and foreclosures as servicers like RMS and Celink. That is why the article by Ryan LaRose is so insightful.

        (The opinions expressed in this reply are not necessarily those of RMS or its affiliates.)

  2. I entered the industry in 2003; loans I originated generally began crossing over at the peak of the housing price bubble. Not 100% but most have been settled with a deed in lieu. To my knowledge an heir has never retained the subject property.

    • Theresa,

      I have no idea what you mean when you write: “I entered the industry in 2003; loans I originated generally began crossing over at the peak of the housing price bubble.” Generally homes reached their highest values “at the peak of the housing price bubble.” So if the cross over point you reference is actually the point where the balance due exceeds the value of the home, that is hard to imagine “at the peak of the housing price bubble.” If you are referring to the point where the balance due is 98% of the appraised value of the home at closing, the youngest borrowers on your HECMs must have been at least in their late 80s unless home values in the area(s) you were originating in saw marginal home price increases.

      “The peak of the housing price bubble” is generally between late 2006 and early 2008 depending on what part(s) of the country you originated in.

      I do, however, understand that a significant number of HECM borrowers in the due and payable status have transferred their deeds in lieu of foreclosure. However, if there is any equity in the home when the deed is transferred, that equity no longer belongs to the borrower but rather the party to whom the deed was transferred such as Fannie Mae, the lender, or other party.

      (The opinions expressed in this comment are not necessarily those of RMS or its affiliates.)

  3. Mr. Johnson,

    You are not by yourself. Most reverse mortgage originators have no idea what foreclosure is and how often it occurs in relation to the termination of a HECM. In the last few years it has been THE most common way for a HECM to terminate. Following foreclosure it becomes lender REO or HUD REO if the HECM was in assignment.

    Since most HECMs do not terminate until after at least 8 years following closing, it is not surprising to read your comment. Mr. Ryan LaRose of Celink wrote a very interesting article on the incidence of foreclosures which was published by Reverse Review last December. As of 2011 that firm saw 70% of its terminations on loans it services occur through foreclosure. You will find the article at:

    What most HECM originators do not realize is that to the lender or HUD there is little difference between foreclosure and relinquishing title in lieu of foreclosure except that foreclosures are messier and costs are generally much higher to the lender and property value reduction risk (or risk of higher renovation costs) is usually greater with foreclosure due to time requirements and lack of being able to control the use of the property until foreclosure occurs. In tax lingo we consider foreclosure and deed in lieu of foreclosure to be “transactional cousins”.

    If the industry did what you advise “go after and eliminate the individuals causing these problems, not the entire industry,” that tactic would essentially eliminate all potential borrowers.

    What many originators do not realize is that non-payment of taxes and insurance does not cause foreclosure. Such non-payments can cause the HECM to go into the due and payable status. Once the HECM is in the due and payable status (no matter what the reason including death of the last surviving borrower) if the loan is not paid off in full by payment from the borrower or by payment from the heirs where the collateral is no longer the principal residence of any borrower due to death of such borrower (for heirs only, the required payoff is the lesser of the balance due or 95% of appraised value of the home at the time of payoff), then the loan must be satisfied in some other manner. The most common ways the loan can be satisfied when no direct repayment is made by the property owner are 1) through sale by the property owner at or above the minimum HUD required sales price, 2) deed in lieu of foreclosure, and 3) foreclosure.

    (The opinions expressed in this reply are not necessarily those of RMS or its affiliates.)

  4. Shannon,

    Item 10 of the HUD HECM Servicing FAQ at states the following:

    “FHA regulations at 24 CFR 206.125(c) permit a sale of the mortgaged property for at least the lesser of the loan balance or 95% of current
    appraised value if the loan is due and payable. Is a conveyance of the mortgaged property by will or operation of law to the estate or heir after
    the mortgagor’s death within the meaning of “sale?” New 07/19/2011

    Yes. When a HECM loan becomes due and payable as a result of the mortgagor’s death and the property is conveyed by will or operation of law to the mortgagor’s estate or heirs (including a surviving spouse who is not obligated on the HECM note) that party (or parties if multiple heirs) may satisfy the HECM debt by paying the lesser of the mortgage balance or 95% of the current appraised value of the property.”

    Adding others to title should not impact what is contained in item 10 since title would transfer by will or operation of law at least as to the borrower’s title interest.

    Where title does not transfer as a result of death is with most living trusts. One of the most sophomoric recommendations I hear reverse mortgage originators make is that title to the home be placed in the typical living trust. Unfortunately most estate and trust attorneys have no idea that HUD has the position it does on the title transfer issue and repayment of a HECM where the heirs might want (or definitely want) to keep the property following the death of a HECM borrower.

    For most borrowers whose heirs are only interested in the equity in the home, a living trust can be a good answer; however, for certain tax and beneficiary issues, a separate revocable trust with different contingent beneficiary percentage interests may be best. The reasons for such the latter trust go beyond the scope of this comment.

    (The opinions expressed in this comment are not necessarily those of RMS or its affiliates.)

  5. First off, it is very easy to accuse the big bad mortgage company of doing something wrong. Good press for the legislator and negatively slanted media lap it up.

    Where is the proof? Where are the examples. Why does our industry allow such accusations to go unchallenged?

    If they can prove the accusation shame on the company, if not shame of the legislator (like that really matters).

    I can’t imagine any prudent servicing agent not offering the 95% option.

    Post death conveyance or not, if I am the lender/HUD, I am jumping on any offer for 95% of the FMV coming from an “in or out” of title family member/heir.

    Foreclosures and REOs are nothing but a hassle and a losing proposition in many if not most cases.

    If I did have to foreclose, I would still be very happy for a 95% offer, the quicker the better!

    The next thing we can expect to see is a “Heir Search” before closing and a signed acknowledgement from each of them allowing for their parent to get a HECM.

    This new procedure, surely to be undone, when the first consenting heir changes their minds and goes screaming to the press and their legislator.

    After all, why be accountable, no profit in that!

  6. Is it true an appraisal is required after death ig borrower and After the death of the borrower, who us responsible for the appraisal? I am fighting with lender that documents did not say my father as borrower should pay that. Also they did the appraisal one week before we closes escrow with three times the amount of the loan.

  7. Yes.. It’s very widespread… As baby boomers continue to pass away with many living with family due to economy…. It’s a problem just about to begin!

    • Ginger,

      Baby Boomers are those adults who were born after 1945 but before 1965. While a small percentage of these adults have passed away in the last 69 years, on average this cohort of adults is expected to outlive those born before them.

      Are you talking about seniors who were alive during the FDR administration?

  8. Oh.. I am an heir who was not offered 95% Option
    ..they put lock box on moms house less than months after she passed away… After breaking in to secure it… I was unable to sort moms things… They ransacked stole… Neighbor said filled an SUV from moms… I got no niety five percent notice letter nothing… But months later did get served foreclosure papers….. I contacted Banking Dept…. The first day sent email to lawyer about 95% etc… It’s been month…I’m in moms hoping for the best on the 95% rule..

  9. Ginger,

    As to any grievance for which compensation may be due or right accruing to that grievance, you need to explore those possibilities with a competent attorney who is licensed in the state where the home is located. Remember you can be an heir with no interests in the home.

    Also if the 95% option is available, the lender is simply the seller of the property so you will still have to get your own financing to acquire the home.

  10. Baby boomers are people born during the demographic post–World War II baby boom approximately between the years 1946 and 1964, giving

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