HECM Servicing ~ From Closing to Payoff. Counselor Training March 10, The National Reverse Mortgage Lenders Association

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1 HECM Servicing ~ From Closing to Payoff Counselor Training March 10, 2011 The National Reverse Mortgage Lenders Association Peter Bell, President & CEO Steve Irwin, EVP

2 Training Agenda HECM Servicing ~ From Closing to Payoffs (Part 2) Introductions Repair Administration Disaster and Casualty Restoration Partial Prepayments Tax and Insurance Monitoring Occupancy Partial Releases Bankruptcy Short Sales Deed In Lieu Foreclosure Reconveyance Claims and Assignments

3 The National Reverse Mortgage Lenders Association Founded in 1997, The National Reverse Mortgage Lenders Association (NRMLA) is the national voice of the reverse mortgage industry, serving as an educational resource, policy advocate and public affairs center for lenders and related professionals. Peter Bell, President and CEO, NRMLA Steve Irwin, Executive Vice President, NRMLA

4 Servicers Obligations Are Many and Varied Loan Boarding Administering Payment Plans LOC Term Tenure Modified Fixed Rate Closed End Timely Disbursements Payment Plan Change Processing Repair Administration Customer Service Issuing Statements to Borrowers (Monthly & Annual) Posting Partial Prepayments Servicing Accounting Servicing Fee Calculations Collection of MIP Reconciliations w/ HUD and Investors Occupancy Verification Property Tax Monitoring Insurance Monitoring Hazard Flood Homeownership Dues and Assessments Delinquency and Default Processing Partial Releases Sub dividing collateral Disaster and Casualty Restoration Due and Payable Preparation Death of Last Borrower Other Due and Payables Account Collection Foreclosure, Deed In Lieu, Short Sales Mortgage Discharge Claims and Assignments

5 Repair Administration The appraisal is to determine what repairs may be necessary so that the property meets HUD s minimum acceptable quality levels It is an as improved appraisal The appraiser is to provide an estimate of the cost of the repairs, if qualified to determine the estimate. If the appraiser is not qualified to provide the estimate, then the estimate shall be provided by a licensed expert.

6 Repair Administration If estimated cost of repairs < 15% of Max Claim Amount, then repairs may be completed after loan closing Lender and Borrower are to certify required repairs and timeframe for completion through execution of Repair Rider an Addendum to the Loan Agreement Repair Set Aside = at least 150% of the estimated cost of the repairs Borrower is obligated it complete the required repairs within the timeframe stated on the repair rider (12 month max) Borrower is to select contractor to perform work Borrower is to ensure all required repairs are completed in a workman like manner

7 Repair Administration Servicer may charge a fee for administering repair accounts. Allowable fee not to exceed the greater of $50 or 1.5% of the funds advanced for repairs Best Practices Letter Cycle Introductory Follow up Pre expiration

8 Repair Administration Servicer to ensure required repairs completed in a workman like manner Work is to be inspected by licensed professional prior to making repair disbursements. Cost of inspection is paid by borrower from Repair Set Aside Initial disbursements for materials are acceptable Payments are to be made payable to Borrower AND Contractor ALL payments to borrower are to be suspended if required repairs are not completed by the date specified on the repair rider Servicer is ensure all mechanic s liens have been lifted. Servicer will request certification of mechanic lien removal from Contractor

9 Repair Administration Any funds remaining in Repair Set Aside are to be either disbursed to borrower or transferred to Line of Credit If funds not available in Repair Set Aside to properly complete required repairs, servicer is obligated to force a payment plan change or make arrangements with borrower to advance required funds. Servicer obligated to sign off on completed repairs via HUD form 2300 and must maintain this form in borrower file FAILURE TO COMPLETE REPAIRS WITHIN REQUIRED TIME FRAME IS A DEFAULT ON THE TERMS OF THE LOAN AGREEMENT

10 Polling Question

11 Disaster and Casualty Restoration Servicer is to be listed as loss payee on all property insurance coverages. Payment for Loss will be issued in name of borrower and servicer If property is damaged due to casualty, and amount of loss is greater than allowable under servicer policy, the funds will be held in an escrow account and repairs will be monitored as per Repair Administration procedures. Servicer is obligated to pay the borrower the interest earned on any insurance loss funds held in escrow

12 Partial Prepayments Servicer is obligated to accept partial prepayments at any time during the life of the loan with out charge nor penalty. Prepayments to be applied in a manner consistent with the Loan Agreement First, that portion of the loan balance representing aggregate balance of Mortgage Insurance Premiums Second, that portion of loan balance representing aggregate payments for servicing fees Third, that portion of loan balance representing accrued interest under the NOTE Fourth, that remaining portion of the principal balance All partial prepayments will reduce outstanding principal balance as all line items above are capitalized into outstanding principal balance REMINDER: Future use of prepaid funds dependent on Open vs. Closed End Credit Tax Benefit only available if prepayments reach the Interest portion of loan balance. Borrowers are always encouraged to discuss with Tax Experts.

13 ANY QUESTIONS AT THIS POINT?

14 Monitoring of Taxes and Insurance Borrower s are responsible for maintaining proper Hazard and Flood Insurance on the collateralized property during life of the loan. A Borrower may opt for a creation of an Insurance Set Aside. Lender to offer this feature and counselors to reinforce this fact as well. If a Borrower has an Insurance set aside, then timely payments of Insurance are the Servicer s responsibility for as long as funds are available in the Set Aside. If the property is determined to be located in an area that FEMA has indentified as having flood hazard, the borrower is obligated to maintain proper flood insurance. Servicer is obligated to obtain a life of loan flood determination contract on the collateralized property for each and every loan in service. If Flood Zone determination changes, borrower may be obligated to obtain flood insurance, or may be permitted to cancel flood insurance. The servicer is obligated to notify the borrower of any changes to Flood Zone determination. ( OUT now IN or IN now OUT )

15 Monitoring of Taxes and Insurance Borrower is obligated to carry Hazard Insurance in the amount equal to 100% of the insurable value of the property at time of closing. Insurable value: Estimated Cost New Appraised Value minus the site value If Flood Insurance is required, then coverage is to be the lesser of the insurable value of the property or the maximum allowed by the Flood Disaster Protection Act ($250,000)

16 Monitoring of Taxes and Insurance Servicer is required to force place insurance coverage immediately upon notification of non payment or cancellation of borrower policy. All unearned premium refunded to borrower upon proof of coverage. NOTE: FAIR Plan contact information is now in the WIKI!!

17 Polling Question

18 Monitoring of Taxes and Insurance Borrower is obligated to pay for all property charges including ALL taxes, ground rents, Homeownership Association Dues, and special assessments. Any Property Charge which might create a lien on the collateral. Borrower may create a Set Aside and have the Servicer responsible for such payments. Servicer obligated to advance for payment if borrower fails to provide evidence that delinquency has been cured. REMINDER: Only CA, MA, OR have acceptable tax deferral programs, but borrower may be eligible for local exemptions!!!!

19 Occupancy At least one remaining borrower must occupy the collateralized property as principal residence for life of loan AARP Lawsuit Principal Residence is defined as primary abode where borrower resides for the majority of the year A borrower may only have ONE principal residence

20 Occupancy Tracking Borrower is obligated to certify the collateralized property is primary residence on an annual basis Servicer is obligated to forward to borrower a certificate of occupancy 30 days before, or after, anniversary of closing date Borrower is to be given 30 days to sign and return certificate of occupancy If borrower fails to return first certificate within the 30 days, servicer is obligated to issue a second cert of occupancy Servicer may only obtain telephonic occupancy verification after BOTH certs have not been returned Servicers are to perform a Death Audit to reinforce Occupancy procedures.

21 Occupancy Tracking Servicer will order an occupancy inspection only once written and telephonic outreach has been exhausted. Cost of occupancy inspection not charged to borrower. If inspection confirms property no longer occupied by borrower, case will be referred to HUD requesting acceleration. Borrower may request approval of extended absence from property. Must provide actions taken to ensure property is maintained. HUD will only approve acceleration for Occupancy if verified that property is vacated and/or verified borrower not able to return to property.

22 Polling Question

23 Partial Releases Servicer is obligated to coordinate requests for partial release of collateral. All partial releases must have consent of HUD s servicing office in Tulsa, OK. Servicer will need written request and a licensed survey of the property with detail of improvements and detail of the portions to be released. Entire property is encumbered by the lien created by the reverse mortgage, but only FIVE acres are considered when determining amount of proceeds available.

24 Bankruptcy Monitoring Bankruptcy is NOT a default condition on a HECM reverse mortgage Servicers are obligated to monitor their portfolios for any BK filings All disbursements, other than mandatory payments for property charges and property preservation, are to be suspended upon borrower filing for BK Disbursements can only resume once BK is discharged and the servicer s BK attorney approves resumption of disbursements

25 Short Sale Processing Servicer is obligated to coordinate requests for Short Sales (sale of property for less than outstanding principal balance) Request for short sale can be submitted by borrower, borrower estate, or authorized borrower representative Servicer is to ensure the Short Sale is an arm s length transaction Servicer is to consider sales for 95% of appraised value. Appraisal is to be a full, interior appraisal Appraisal is to be As Is Appraisal cannot be older than 6 months

26 Short Sale Processing Borrower/Borrower Estate/Borrower Representative must provide the servicer the following for short sale approval: Preliminary HUD 1 HUD 1 Copy of Sales Contract

27 Short Sale Processing Preliminary HUD 1 servicer will review this document to ensure no additional benefit is due the borrower from sale of property HUD 1 servicer will review the HUD1 to ensure all closing costs are reasonable per HUD guidelines Copy of Sales Contract servicer will review to ensure completeness and accuracy All documents are then submitted to HUD servicing center for approval If approved, a claim is then filed for balance owed on the reverse mortgage after settlement through the sale

28 Deed in Lieu Deed in Lieu of Foreclosure (DIL) is the process of transferring the property title to the investor thereby avoiding the foreclosure process. DIL occurs when there is little or no equity remaining in the property or the property has depreciated in value and the borrower or the estate agrees that the best alternative is Deed in Lieu of Foreclosure.

29 Deed in Lieu Borrower / borrower s estate / borrower s representative should submit request for DIL to servicer in writing Servicer will then order a title search on property to determine: Property is free from all other liens other than the HECM Reverse Mortgage. No judgment is pending on the property. No secondary deed exists on the property. Valid title exists on the property. Request for DIL then submitted to specialized attorney who will handle within FNMA approved fee structure If approved, a Quit Claim on Grant Deed is prepared DIL will settle the account borrower would NOT be required to separately pay Tax and/or Insurance Default Amount. If DIL not approved, foreclosure process continues NOTE: A request for DIL MAY be submitted prior to issuance of Due and Payable letter if such action avoids time delays and costs of initiating foreclosure.

30 Polling Question

31 Foreclosure A Due & Payable is to be issued upon death of last remaining borrower, or upon HUD s acceleration approval. Borrower/Borrower Estate is notified that entire balance is due and must be paid within 30 days. If balance is not paid, first legal action for foreclosure is to take place within 180 days of Date of death Issuance of Due and Payable letter First legal action definition varies by state. See Mortgagee Letter Servicer is obligated to issue Notice of Intent to Foreclose prior to the First Legal action. Borrowers/Borrower Estates will be receiving Notifications of Foreclosure prior to the 6 month mark!

32 HECM Reconveyance Servicers are obligated to discharge the HECM Reverse Mortgage according to applicable State Law upon receipt of payment in full. Failure to properly discharge the mortgage in an accurate and timely manner can result in severe fines and penalties to the servicer.

33 Claims & Assignments A HECM may be assigned to HUD when loan balance reaches 98% of the maximum claim amount All Payments to the Borrower must be current Mortgage Insurance Premiums must be current Title must be free and clear Loan cannot be in technical default (Tax and/or Insurance) Required repairs must be completed. Loan cannot be due and payable Borrower must be notified of servicer s intent to assign If a request for funds would take the account over the 98% threshold, the servicer may have HUD make the disbursement

34 Claims and Assignments Servicer must submit the following with the request for assignment: Original Note Original Payment Plan and Current Payment Plan Title Insurance Original Mortgage/Deed of Trust Proof of Mortgage Insurance Certificate Current Hazard Insurance Declaration Page Current Occupancy Certificate

35 Claims and Assignments Once assignment is accepted, the loan will be serviced by the HUD contractor in a manner consistent with the described procedures Once the assignment is accepted, the servicer will file an Assignment Claim and unpaid principal balance will be paid to the servicer through that claim process.

36 Polling Question

37 Claims and Assignments Servicer is obligated through investor agreements to submit an FHA Claim for: REO Claims (Sold or Appraisal Based), Assignment Claims Short Payoff Claims Supplemental Claims

38 Claims and Assignments REO Claims (Sold or Appraisal Based) An REO Claim is processed when the lender becomes owner of the property due to a maturing event on the loan and the borrower does not repay the loan. When a property is not sold at Sheriff Sale to a third party, the property will revert to the investor as REO or Real Estate Owned. The property also may become owned by the lender as a result of obtaining Deed in Lieu of Foreclosure. An REO Claim may be submitted to HUD if the net sale proceeds from the sale of the property is an amount short of the unpaid balance plus costs. An REO claim may also be submitted if the property remains unsold for six months. The amount of the claim is based on the difference between a new appraised value and the unpaid principal balance plus costs. The servicer will submit the claim to recoup losses up to the Maximum Claim Amount.

39 Claims and Assignments Short Payoff Claim A Short Payoff Claim can be submitted to HUD based on a loss realized as a result of a short sale. This is when the property is sold for less then the amount of the full payoff. A Short Sale claim may be considered if the property is being sold for at least 95% of the current appraised value. The claim is submitted to reimburse the lender for the net difference between the loan payoff amount and the net sales proceeds (the amount realized after deducting allowable costs) of the property.

40 Claims and Assignments Supplemental Claim A supplemental claim has to be filed within six (6) months of HUD s payment of the primary claim and is one in which the lender / investor is attempting to be reimbursed for additional costs or expenses after HUD has paid the primary claim.

41 ANY QUESTIONS? Steve Irwin, EVP, National Reverse Mortgage Lenders Association