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‘More reverse mortgage servicing protections needed’

reverse mortgage foreclosure

The NCLC recommends the CFPB & the FHA create these reverse mortgage servicing protections

After several years of servicing issues for both borrowers and their heirs reverse mortgage originators and lenders alike welcomed the news in March 2022 that Celink had been awarded the servicing of HECM loans held in assignment by the Federal Housing Administration. However, a history of previous servicing shortfalls from numerous servicers has led some to call for increased oversight and protections to prevent unnecessary foreclosures of HECM loans.

On February 6th the National Consumer Law Center published an article by Sarah Bolling Mancini entitled, “Unmet Promise: Reverse Mortgage Servicing Challenges and How to Preserve Housing Stability for Older Adults”. Mancini outlines several servicing shortfalls that may have led to avoidable foreclosures. 

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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.
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  1. Very interesting. Is there a guideline which says a lender cannot begin foreclosure proceedings until six months have passed? I’m not sure there is something in writing which protects borrowers.

    • Hi Paul,

      No, I don’t believe there is a direct reference to a 6-month timeline. In fact, HUD requires that the first step of the foreclosure (First Legal Action) begin 90 days after a default. Keep in mind, foreclosure timelines will vary by state, and states may require either a judicial, or non-judicial, foreclosure.

      One of the biggest mistakes I hear in the field is loan originators telling an individual they have 12 months. NOOOOO! The borrower or heirs need to communicate with their servicer immediately.

      Keep in mind, the servicer can request 3-month extensions. So long as the homeowner is making a reasonable effort to sell or refinance the property, HUD can grant these extensions in 3-month intervals with the entire period not to exceed 12 months.

      Here is the language in HUD 4330 Ch 13-34:
      “If the mortgagor or the mortgagor’s estate fails to repay the outstanding balance on a due and payable mortgage or if the mortgagor fails to deed the property to the mortgagee within the prescribed time, the mortgagee must begin foreclosure proceedings within 3 months. The Field Office may authorize the mortgagee to delay the beginning of foreclosure proceedings longer than 3 months if a sale by the mortgagor or the estate is in process. If the estate is making a reasonable effort to sell the property, these extensions should be granted in 3-month intervals with the entire period not to exceed 12 months (see sample extension letter to mortgage).”

      • Note that there is nothing in the above or note and deed of trust to stop the servicer from starting a foreclosure immediately, even if the foreclosure is based on false information. I have had more than one foreclosure process started based on a false claim one of my borrowers no longer lived in the home. In each case, I had no trouble verifying the borrower still lived in the home. I have had a servicer representative call me and not be able to even identify the correct loan he was calling about. The issue was with one of my borrower’s reverse mortgage and he thought he was calling about my reverse mortgage. I’ve had force placed insurance put on borrower’s homes that were properly insured because the servicer refused to properly verify insurance. We were able to verify the insurance in minutes. Every servicing issue I have helped a borrower resolve has been with Celink. I find Celink and FHA consistently unresponsive to servicing issues. Most people controlling the reverse mortgage industry have never had a reverse mortgage and have no real understanding of the loan from the borrower side. This is in contrast to the forward mortgage business where most people controlling the industry either have or had a forward mortgage. Old people understand what it’s like to be young because they were once young. Young people don’t understand what it’s like to be old because they have never been old. It’s hard to truly understand where you have never been.

      • Dan,

        As a small aside, in California lenders can either pursue a judicial foreclosure or foreclosure through the trustee’s right to sell following an uncured default where the lender created (and the borrower signed it) and filed a trust deed on the property prior to the default.

        There are only a handful of lenders that seek judicial foreclosure because of the much longer process and the related additional costs.

        HOWEVER, just electing the trustee’s right of sale means that the lender give up any right to a judicial deficiency, meaning that pragmatically even a recourse mortgage automatically becomes nonrecourse by merely making the election..

        Again the timetable for a foreclosure through the trustee’s right of sale is generally years less than judicial foreclosure.

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