Reverse Mortgages: Seniors Now Expected to Pay Taxes and Insurance
Many seniors don't realize that they can lose their home to foreclosure if they have a reverse mortgage, since no payments are due. They just assume any past-due taxes or insurance will be paid when they die.
While that is how it's worked in the past -- even though it wasn't really supposed to work that way -- the practice is ending.
The FHA, which holds most of the reverse mortgages, saw a $798-million loss in the program in the last fiscal year. While most of that loss was caused by the decline in property values nationwide, another key factor was tax and insurance delinquencies that the FHA paid on the properties.
In the past, the FHA did not move to collect these delinquencies because they didn't want to toss seniors out on the street. But Fannie Mae has begun telling servicers of reverse mortgages to initiate foreclosure when taxes and insurance payments have not been paid on a home for an extended period.
Reverse mortgages, which are available to seniors starting at age 62, do not require a mortgage payment. Instead, the seniors get cash for the equity in their homes. The big problem is that there is no escrow collected to pay for taxes and insurance. Some argue that Fannie Mae and the FHA should begin setting up escrows for reverse mortgages.
The FHA is expected to publish new rules this summer that will emphasize a "curative approach," which means that they will work with seniors to get them to repay past tax and insurance delinquencies, as well as stay on time for future payments. If seniors can't afford these payments, they will be referred to charitable groups that can help.
A senior's ability to afford taxes and insurance is not tested when a senior takes out a reverse mortgage. Seniors are not required to prove their income and lenders don't even check their credit scores. Seniors receive mandatory counseling before closing on the loan, but no one takes a close look at whether the borrower can afford to stay in the home. Not only do seniors need to worry about taxes and insurance, but also repairs to the home.
If you or your parents are struggling to keep their home and need help, a great place to start is the Eldercare Locater. This resource of the U.S. Administration on Aging can help you find the needed resources in your state or community. You may also want to contact a HUD foreclosure avoidance counselor.
Don't wait for your mortgage servicer to contact you if you have a reverse mortgage. If you're having problems making the tax or insurance payments on your home, reach out to senior service agencies for help.
Lita Epstein has written more than 25 books, including "Working After Retirement for Dummies."
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