Reverse Mortgages & The Robo-Signing Mess
October 20th, 2010
- Foreclosures filings fall 4% in October
- Help for reverse loan borrowers behind on tax and insurance payments
- Reverse mortgage delinquencies trouble FHA program
- Sunbelt Cities Top Foreclosure List
- Who Can Get a Reverse Mortgage?
If you have a reverse mortgage or are considering one then you may wonder how the current robo-signing scandal might impact your situation.
Most likely reverse mortgages are about as safe as any form of real estate financing in the context of the affidavit debacle.
What we now have is a situation where large numbers of foreclosure affidavits have been signed without being read. This is a potentially huge problem because the content of an affidavit is supposed to be carefully reviewed by the signer, the affidavit is supposed to be true. If the affidavit is not read then it’s possible that it contains mistakes.
Now we have a situation where large numbers of foreclosure affidavits will have to be reviewed to determine if they are factually accurate. As an example, the state of Maryland is considering an audit of all recent foreclosure affidavits to see if they are accurate. In most cases the affidavits will be factually correct because the homeowner did not make required monthly payments. However, if there is a single instance where an individual has lost their home to a foreclosure which was not justified then a lot of lawyers and lenders are going to face enormous judgments, as they should.
But what about reverse mortgage borrowers? How are they impacted?
The answer is that the robo-signing debacle should have very little effect. Here’s why:
First, reverse mortgage borrowers have no requirement to make monthly payments for principal and interest. The leading cause of foreclosures is simply off the table.
Second, reverse mortgage borrowers do have an obligation to pay property taxes and insurance. If left unpaid such bills make the loans delinquent and that can lead to foreclosure — but it can take some time to determine that these bills are, in fact, not paid.
Third, reverse mortgages become payable when the property is sold, the borrower moves or the borrower passes on. As events go these are pretty clear.
Fourth, even when a reverse mortgage is delinquent HUD has been remarkably lenient with borrowers. This is important because most reverse loans are actually home equity conversion mortgages (HECMs) insured by the FHA. As we reported earlier this month, “for a long time HUD has had an informal foreclosure deferral policy. When the policy ended HUD did not instruct services how defaulted loans — loans typically where borrowers were not paying property taxes or insurance — were to be handled.”
Fifth, while reverse mortgages are typically a form of refinancing, borrowers can use a HECM to acquire property. The buyer wants to have good, marketable and insurable title. If the property had been foreclosed and the affidavit was not correctly completed there could be a cloud on the title — a strong reason to have title insurance.
The robo-signing mess will largely be a matter for the courts to resolve and it’s likely that few foreclosures will be reversed. Despite the widespread nature of the problem, and despite the fines, suspensions and disbarments which are likely to occur, there should be little worry for reverse mortgage borrowers