Preventing reverse mortgage foreclosures

Monday, September 25, 2017

 

Reverse mortgages can help older homeowners rely on their home equity to remain in their homes when their incomes are not enough.

However a growing number of seniors are at risk of losing their homes to foreclosure because they unknowingly fall behind on property taxes, homeowners insurance or necessary repairs.

The Center for NYC Neighborhoods (CNYCN) has been studying the surge in elderly homeowner defaults and foreclosures, in New York and nationwide, and has identified key factors they believe are contributing to the rise in reverse mortgage foreclosures.

According to CNYCN, these factors include:

  • Lenders not typically working with reverse mortgage homeowners to avoid foreclosure because of U.S. Department of Housing and Urban Development (HUD) regulations.
  • Poor communication. In New York, some homeowners are not receiving crucial information from lenders about their tax obligations and options to resolve their defaults.
  • Poor tax payment coordination. Some lenders are not recognizing agreements seniors have with a local tax office, leading to unnecessary defaults.

Borrowers of new reverse mortgages will not be able to borrow as much money, based on their home's value, and will pay higher insurance premiums up front (2%) and lower annual premiums (.50%), as of October 2, 2017. 

The Federal Housing Authority (FHA) which insures reverse mortgages instituted these new rules to help limit the growing number of reverse mortgage loan defaults and protect the FHA insurance program. The rules affect the Home Equity Mortgage Conversion (HECM) program.

Additionally, senior homeowners in New York who are struggling with reverse mortgage foreclosures are now entitled to formal loss mitigation proceedings designed to find an alternative to foreclosure.

CNYCN recommends reforming foreclosure processes, adding enhanced communication with aging homeowners and extending more flexible loss mitigation options through HUD. Click here to see more of their recommendations.

 
 
 

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