The Reverse Review
Nov./Dec. 2013
learn
servicing
Where the Servicing Ends Ryan L a Ro s e
according to ryan
“In the event that a
loan is called D&P,
servicers attempt
to work with the
borrower or their
heirs and assist
them in satisfying
the outstanding
balance due on
the mortgage.
If the servicer is
receiving regular
communication
and cooperation,
and receives
documentation
that supports the
efforts to sell the
home and/or pay
off the loan, then
the servicer can
request additional
time extensions from
HUD.”
I
’ve written about various
maturity events that occur with
a reverse mortgage and place a
loan in due and payable (D&P) status.
Primary among those events are the
death of the last surviving borrower,
which, in my experience, accounts for
approximately 60 percent of all D&P
volume. The remaining 40 percent
comprise the permanent vacancy
of the property as the borrower’s
principal residence and tax and
insurance defaults.
As a result of HUD guidelines
regarding the deadline for the
initiation of foreclosure proceedings,
once a loan goes into D&P status,
borrowers have approximately 60 days
to satisfy the loan, cure the default
or provide documentation that they
are taking steps to satisfy the loan
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before foreclosure must be initiated.
Borrowers can cure the default
by moving back into the property
or repaying the delinquent tax or
insurance advances, but in order to
satisfy the loan, they would have to
pay the loan in full (typically through
the sale of the property), complete a
short sale (per HUD guidelines), sign
a deed in lieu of foreclosure (deeding
the property back to the investor), or
simply let the loan go into foreclosure.
In the event that a loan is called D&P,
servicers attempt to work with the
borrower or their heirs and assist them
in satisfying the outstanding balance
due on the mortgage. If the servicer
is receiving regular communication
and cooperation, and receives
documentation that supports the
efforts to sell the home and/or pay off
the loan, then the servicer can request
additional time extensions from
HUD. These extensions can provide
borrowers with up to one year from
the date of death or the date the loan
was approved to be called D&P by
HUD. This does not mean, however,
that every loan automatically receives
these time extensions—they have to be
individually reviewed and approved
by HUD.
fact: The number of loans moving into
foreclosure has already dropped by more than 10
percentage points in 2013.
servicing
Every action a servicer takes after a
loan has gone into D&P status has to
meet the strict and precise servicing
requirements set forth by HUD. It’s
important to understand that HECM
servicers have very little flexibility
within these HUD regulations outside
of what is detailed above. HUD sets
forth a prescribed process and holds
the servicers’ figurative feet to the fire
if they violate those regulations.
Where does the servicing end? It
ends with the calm, sensitive and
compliance-driven resolution of the
loan and the protection of our product,
our industry and our HUD partners—
and not a moment before. x
appraising
Author’s note: This article’s title is my homage to
Where the Sidewalk Ends by Shel Silverstein and
my two grade-school readers. It is also an attempt
to bring a bit of levity to the topic of defaults and
foreclosures—no one’s favorite subject!
marketing
*
servicing
When all available time extensions
granted by HUD have expired, or the
estate is uncooperative or unwilling
to make an effort to satisfy the loan
balance, then the servicer is required to
The national housing market appears
to be on the upswing and that
certainly bodes well for the reverse
market. To get a feeling for the impact
of how the housing crisis impacted
servicing, in 2006, once a loan went
into D&P status, 25 percent of these
loans resulted in a foreclosure sale,
while 75 percent of them were paid
in full. Compare those numbers with
the “high of the low” in 2011, when
we saw 70 percent of loans facing
foreclosure sale, and only 30 percent of
them paid in full. From what we have
seen, the number of loans moving
into foreclosure has already dropped
by more than 10 percentage points in
2013, and that positive trend shows
every sign of continuing.
originating
To protect the product and our
industry, loans cannot be originated
that violate HUD regulations, and as
servicers, we can’t service a loan that
is in violation of HUD regulations.
Most importantly, if a servicer
were to disregard HUD servicing
regulations, its insurance fund could
be compromised.
initiate foreclosure action by referring
the loan to an attorney. It’s important
to note that the loan can still be
satisfied anytime up to the foreclosure
sale date. The reverse mortgage
foreclosure process follows a similar
path to that of forward mortgage
foreclosures. There are required
notices, timelines and actions, and they
vary from state to state. For example,
in Michigan, it may take 90 to 120
days from the time the borrower’s
file is referred to the attorney for the
property to go to foreclosure sale.
In sharp contrast, in New York or
Florida, depending on the complexity
of the estate and number of heirs, a
foreclosure may take anywhere from
24 to 36 months (or more) to complete.
hmbs
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are crucial to your success. Not sure
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