Magazine article American Banker

Audit: Servicers Need Guide for Sour Home Equity Loans

Magazine article American Banker

Audit: Servicers Need Guide for Sour Home Equity Loans

Article excerpt

Byline: Brian Collins

The Federal Housing Administration must guide mortgage servicers on how to address the rising number of senior citizens who are defaulting on their federally insured reverse mortgages, according to a report by the Department of Housing and Urban Development's inspector general.

HUD auditors have discovered that four servicers are holding 13,000 FHA-insured home equity conversion mortgages on which the borrowers had technically defaulted by not paying the real estate taxes and insurance on their homes.

The defaulted loans had a maximum claim amount of more than $2.5 billion, according to the 19-page audit released Aug. 25.

The servicers continue to service these home equity conversion mortgages, paying taxes and insurance for the borrowers totaling $35 million but without informing HUD, the report said.

"If HUD does not take action, additional payments will occur in the next 12 months," the auditors said. Two of the servicers told the auditors they are waiting for HUD to issue guidance on how to handle the defaulted loans.

FHA officials said they are drafting new guidance that will instruct servicers to contact defaulted borrowers and "require specific actions to bring the loan into compliance with the terms of the mortgage," an FHA official said in a written response to the audit report.

The Obama administration requested a $250 million subsidy this year for the reverse mortgage program. …

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