Reverse mortgages can be a useful vehicle for people over 62 who have good equity in their home. Seniors can get funds based upon their age and amount of equity. Until now, sufficient equity has been pretty much the only requirement to qualify, and there has been minimal or no attention given to credit scores or applicant’s incomes. The typical borrower is not required to make any monthly payments, and no escrows for property taxes or insurance are collected.
The Federal Housing Administration, which runs the dominant reverse mortgage program, reported its first-ever budget shortfall of $798 million for the program during the last fiscal year, in part because of wide-spread declines in the values of the homes that secure its insured loans.
Mortgage experts say that insurance and tax defaults are rising in part because of the housing recession, but also by borrowers who may not be adequately counciled that foreclosure could be the outcome of non-payment. Tax liens take precedence over mortgages, and with no escrows collected seniors may not keep track of property tax and insurance premium notices.
Until recently the FHA and Fannie Mae were pretty lenient when senior borrowers fell behind or stopped paying, not wanting to appear to be “throwing them out into the street” instead of waiting for full repayment upon the sale of the property. Although neither entity provided statistics on the defaults, they say they no longer have the means to look the other way.
Both say they are looking into solutions that will create a mandatory step-by-step system to contact borrowers who are delinquent, determine the cause, and if necessary refer them to charitable groups who can assist them and prevent foreclosure.
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