July 22nd, 2011 12:05 PM by Juan Luis Rodriguez-Kohly
I am sure you have heard or read about this recently. It is true. But how can that be?
One of the conditions of all Mortgage contracts (it is a contract) is that the Borrower continue to make property tax, HO/Flood insurance and if a condo, Maintenance fee. It is an obligation.
Some reverse mortgagors (borrowers) have used all the funds from the proceeds (advances) from their Reverse. This could happen because they spend it all, or had to pay-off a high mortgage on their home, mismanagement, abuse, etc...
When these items are not paid by the Senior, the Mortgagee (Lender) would take it out of any balance of the proceeds there is an a Line of Credit or Tenure monthly advances left. If there are no funds left, the Lender would have to advance those funds from their own money and increase the outstanding debt of the Reverse Mortgage.
However, that is not really contemplated in the contract. It is not the Lender's obligation to do so. Since home values have been decreasing, and many outstanding balances are higher than the values, neither them nor FHA are very happy. I'll explain.
FHA (Federal Housing Administration) insured the reverse mortgage. Therefore if the value of the home is lower that the outstanding balance of the mortgage, when that property is sold (as a short sale or a foreclosure), FHA would have to pay the Lender the deficiency between the proceed from the sale and the debt.
While the reverse mortgages in default are only about 5% of the total mortgages, it is not a happy situation for anybody. The numbers are growing.
To help reduce the risk of it happening with new Borrowers, HUD might be requiring that Borrowers demonstrate that they will have the means to pay for those items in the future. This most probably will be part of the new HECM Counseling and it will determine f the Senior will be issued a Counseling Certificate or not.
One solution couldl be setting aside part of the proceeds, in escrow, if available. It appears that will be done in the future. However, that might mean that not enough fund may be available to payoff the mortgage or to provide adequate monthly advances to the Senior.
The idea of a HECM Reverse Mortgage is for the Senior to stay at home. I know, I have one. .Your comments will be appreciated. For most answers call me 786-262-6486 or visit http://HappySeniorHomeOwners.com (English-Español). To tell a friend visit http://www.happyseniorhomeowners.com/tellfriend.aspx