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Tip of the Iceberg: HECM Occupancy Abuses

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HECM abuses when borrower no longer occupies the property pose risk to FHA’s MMI fund

reverse mortgage newsHow quickly are HECM properties sold or called due and payable when the last borrower has died or moved out? More importantly, how many properties with a HECM are sitting on the books for years while the borrower’s heirs or unauthorized tenants remain in the house; in many cases for years?

It’s not often during my show prep that I strike gold, but this week was the exception finding an intriguing and unsettling article by Mike Branson. It details where a significant portion of our HECM losses may be coming from. Mike is the CEO and owner of All Reverse Mortgage. He has over 40 years experience in mortgage banking and also has served as an expert witness for the FBI in mortgage fraud cases. That particular experience plus numerous questions he has fielded has raised some very serious concerns which we will address here today. A very timely topic since the HECM may be facing additional changes this year. 



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  1. Because my website may be one of the few that discusses Reverse Mortgage foreclosure, I’ve received over a hundred calls over the years (and sometimes emails) from heirs wanting to know how to stay in the house. I’ve been surprised that many times it was well over a year after the death of a borrower and not infrequently 2-3 years. As Mr. Branson discussed, it was usually an adult child and family that had cared for the borrower the last few years of their life. Perhaps given up their job to do so. So, had no resources of their own to move on.

    I always thought HUD received notice from Social Security when the borrower died so they didn’t rely on the heirs to notify them.

    On an associated note, I receive lots of complaints from my past clients after they have been passed on to NOVAD or more recently after WF transferred their servicing portfolio to Champion. It is usually about not being able to get through on the phone, not receiving return calls or not processing LOC draws. My take on this is that the servicers (or at least some of them) keep their staffing to an absolute minimum (or below minimum) to cut costs.

    Perhaps, the servicers are not following HUD guidelines and HUD doesn’t have the manpower to oversee them properly.

  2. I got a call from an heir. Parents had died more than a year before. He claimed house was worth $435,000, loan $275,000. He had not done anything to probate the property. He could not understand why I could not provide a loan on a property he did not own, with bad credit, and no money. He had no interest in probating and selling. Family was living in the house and would wait for the foreclosure…

    Within the last year, I have heard stories of foreclosure being filed within 3 months of borrower’s death and no foreclosure filed five years after borrower’s death. From what I hear, the servicing of these loans is extremely inconsistent.

    HUD could do a lot to solve this problem if the answers to two questions were required on the application: Who will handle your affairs when you are dead? Who will handle your affairs if you are not able? If these two questions were answered at application and these people were counseled with respect to their duties, this problem could be dealt with. As it is, the servicer has no one to contact to verify the borrower’s status. HUD fails to recognize what it really means, that a reverse mortgage is intended to be a loan on the borrower’s last home. This means the borrower will not handle the end of the transaction. The borrower will be either dead or have diminished capacity so they are unable to live in the home. Why doesn’t HUD make reasonable provision for the borrower being dead or incapacitated at the end of the transaction? The answer is that the people writing the rules are too young to understand the stage of life a HECM borrower is in.

  3. Good information – HUD could pick a HECM Loan Officer from a State Pool of HECM LO’s and have that loan officer go to the Borrowers home and is currently active in the industry go to the borrowers home and fill out an inspection form and have the borrower sign and date the inspection report . The servicing agency would pay a inspection fee. Inspection would also report if the property is in good shape, review county records for taxes paid, and number of people living in the home. This would be less expensive then allowing a home to continue to add thousands of dollars to the debt if the borrowers no longer live in the home. Many years ago I was contracted by an out of state lender to do this on home’s that were 90 days behind in mortgage payments. Just a thought !!!

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