Yes, you can default on a reverse mortgage. When a borrower attains a reverse mortgage, they agree to pay and keep current their property taxes and homeowner’s insurance policies. Failure to do so puts the homeowner in default to the contract with their lender. It’s not widely known but tens of thousands of reverse mortgage homeowners are in default of their contract. This is causing reverse mortgage defaults and ultimately foreclosures.
How will this effect reverse mortgages in the future? More qualifications. HUD has been concerned about suitability and defaults for some time. Consumer credit counseling surveys show less than 25% of those counseled have any budget training and less than 40% use any kind of budget. In an effort to circumvent this knowledge challenge, HUD and the reverse mortgage industry have required all reverse mortgage borrowers to participate in HUD approved third party counseling appointments. This process certifies that the homeowner has demonstrated knowledge in understanding these loans.
Income qualifications will be the next step in HUDs efforts to set borrower’s up for success in the decision of whether or not a reverse mortgage is an appropriate cash flow tool for older homeowners. By requiring income qualifications HUD hopes to minimize tax and insurance defaults. My hopes is that the industry will not do hold backs in proceeds to reverse mortgage borrowers but perhaps adopt escrow accounts that borrowers can pay into on a monthly basis. This in my opinion is a friendlier approach to setting reverse mortgage borrowers up for success vs. disqualifying them by lowering proceeds and holding back funds.
I f you have a reverse mortgage question, Call Angella Conrard, Reverse Mortgage Adviser and Certified Reverse Mortgage Professional at 866-949-7030. No sales, just great information and outstanding service.
