Seniors and the FHA Reverse Mortgage Program
Here is a message for anyone who has a federally insured reverse mortgage or you plan to apply for one: If you do not pay for your local taxes or hazard insurance, your risk of losing your home to foreclosure is about to increase. The Federal Housing Administration (FHA) runs the dominate reverse mortgage program, often had been lenient and forgiving in the past years about tax delinquencies by senior borrowers, but they are about to tighten up their belts and take a more disciplined approach with the new guidelines this summer. The FHA is under the budget gun to do so: The reverse mortgage program suffered a $798-million loss last year- its first ever loss. Because of the widespread declines in the value of the homes that secured its insured loans.
The program has cut its maximum borrowing amounts by 10%. They are looking for ways to bring the program back into profitability. Fannie Mae is instructing its large portfolio of FHA reverse mortgages to toughen up the handling of the tax and insurance delinquencies and is moving towards initiating foreclosure procedures when the borrowers have not paid their bills for extended periods and expose the company to losses.
What does all this mean to Senior Homeowners?
There is going to be more risk for people who take out reverse mortgages but who do not have the capacity to make tax and insurance payments on time.
In the past there was a lot of fore-bearing when the borrowers fell behind or stopped paying. Now they do not have the wiggle room to look the other way.
Unlike standard mortgages, reverse mortgages require no monthly payments from the borrower and have no escrow accounts to cover the property tax bills and insurance. Without these accounts seniors may not keep track of the property tax notices they receive- therefore exposing their houses to tax liens that take legal precedence over the mortgage lien. They may also neglect to pay their hazard insurance-having no coverage in the event of a fire or other major destructive event.
The reverse mortgage programwhich is limited to homeowners 62 and older, also has no rigorous upfront underwriting requirements other than sufficient borrower equity in the home. Unlike standard loans, minimal or no attention is given to the applicants incomes or credit scores. They do or can receive mandatory counseling before closing. FHA needs to take a more serious look at the borrowers assets, income and long term financial ability to pay the associated costs of keeping up the property. Both Fannie Mae and Freddie Mac are working towards the solutions that will not only flag defaults on the senior's tax and insurance payments earlier, but also create a mandatory, step by step system to contact borrowers who are delinquent, determine the causes of the default and if necessary refer them to a charitable group who can assist them and prevent a foreclosure.
Kenneth Harney/Washington Post
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