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FHA Steps Up Intervention for Seniors at Risk of Foreclosure

The Federal Housing Administration (FHA) offers new guidance for homeowners and lenders for borrowers with reverse mortgages falling behind on property taxes and insurance premiums, placing them at risk of foreclosure.

“We understand that some senior citizens have not paid their taxes or insurance for some time and may be at risk of losing their home,” said FHA Commissioner David H. Stevens yesterday. “Today’s guidance is designed to establish a clear framework that protects both the homeowner and the lender who participate in our reverse mortgage program.”

HUD allows lenders to make tax and insurance payments on behalf of elderly clients with Home Equity Conversion Mortgages (HECM) from the borrowers’ available mortgage funds. When those resources are exhausted, the lender must advance funds to protect FHA’s interest and obtain reimbursement from the borrower.

FHA encourages lenders to reach out to delinquent seniors and reminds them that foreclosure is a last resort. HUD awarded $3 million to housing counseling agencies to help seniors defaulting on HECMs. Lenders must send letters to borrowers with delinquent loans as soon as the mortgagee receives notice of a missed payment.The lender must also offer loss mitigation options to allow the borrower the opportunity to cure the deficiency. These options must include, but are not limited to, establishing a realistic repayment plan; contacting a HUD-approved housing counseling agency to provide free assistance to the borrower; and refinancing the delinquent HECM to a new reverse mortgage if there is sufficient equity to pay off the existing mortgage and bring the property charges current.

To avoid problems with unpaid property charges in the future, FHA recently enhanced the HECM program’s pre-closing counseling requirements. Counselors must now place a greater focus on educating borrowers on how important it is that they fulfill the terms of the mortgage, including the requirement that borrowers make timely tax and insurance payments. In addition, counselors now employ a new financial tool which helps identify potential budget shortfalls. Finally, HUD will shortly publish a proposed rule that adds more preventative measures and consumer protections to the existing HECM regulations.

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