It’s imperative for reverse mortgage borrowers to contact their insurance carrier if their property has been damaged in the ongoing Southern California wildfires, and to let their servicer know of anything that could impact their occupancy of their property due to the terms of Federal Housing Administration (FHA)-backed reverse mortgage loans.
These were the top-line takeaways that reverse mortgage servicing experts and professionals shared with HousingWire’s Reverse Mortgage Daily (RMD) when asked about the essential information that borrowers, and the professionals who serve them, should know right now.
Disaster areas, HUD action
There is an exception for those who live in Presidentially Declared Major Disaster Areas (PDMDAs) according to Jared Skrabala, who oversees servicing and asset management at Reverse Market Insight (RMI).
“HUD does not require servicers to follow separate occupancy requirements for natural disaster victims; however, they do provide some relevant guidance for servicers on properties impacted by a PDMDA,” Skrabala told RMD.
“First and foremost, borrowers should contact their servicer immediately if they are impacted by a natural disaster (either by damage to their property or if they have evacuated their property). The servicer will be able to evaluate the borrower’s circumstances, work with the borrower, and provide specific direction on any next steps.”
Generally, borrowers should reach out to their servicer for “any temporary absences from the property” of more than two months. While the U.S. Department of Housing and Urban Development (HUD) does not provide any separate occupancy requirements for servicers to follow for any borrowers inside a PDMDA; there is guidance in its Single Family Housing Handbook 4000.1.
This guidance “requires servicers to invoke a 90-day moratorium on loans subject to foreclosure,” Skrabala said. “For the loan to qualify for the moratorium, the loan must be called due and payable for reasons other than death of the last remaining borrower and the loan cannot be subject to a deferral period.” This means that non-borrowing occupants that do not qualify for a deferral period would also “not be subject to a foreclosure moratorium,” he added.
“HUD also provides a 90-day extension for all servicing deadlines, including deadlines to request due and payable of a HECM loan which includes cases where a borrower has failed to primarily occupy the property or failed to return their annual occupancy certificate timely (which may have been caused or delayed due to the natural disaster),” he said.
HUD announced on Friday that the 90-day HECM extension, along with other mortgage relief, is now in effect from President Joe Biden’s disaster declaration on Jan. 8.
A servicer could still conceivably request a HECM loan be accelerated to due and payable status since a moratorium only applies to those loans already in that state, but “only provides an extension of time for the servicer to request due and payable approval without falling out of compliance with these due and payable requirements,” Skrabala noted.
This means that it is “critical for borrowers to communicate with their servicer when they are impacted by a natural disaster,” he said. “The servicer will be in the best position possible to work directly with the borrower and avoid acceleration of the loan to due and payable.”
Steps to take
Gail Balettie and Jory Kelly of reverse mortgage servicer Celink explained some of the resources for impacted borrowers, including several action items. But the company is also emphasizing the human cost and impact of the devastation being seen in the Los Angeles area, Balettie said.
“We want to express our concern for the well-being of those residents,” Balettie told RMD. “Our thoughts and prayers are with all of those impacted communities. We are ready to assist borrowers; our call center team has been updated on this disaster.”
At the top of the list is to “contact your insurance carrier if there is damage to your property,” the pair said. “This will start the insurance claim process and they will perform a damage assessment. Take pictures of the damage, if possible.”
Then, notify the loan servicer and “provide them with a copy of all damage assessments, claim adjuster’s worksheets and inspection reports.” Borrowers are then advised to contact the Federal Emergency Management Agency (FEMA) to register for assistance, which can be done online or over the phone. Insurance policy coverage can vary, but there may be resources available to borrowers through FEMA “or other organizations for assistance not covered by your insurance,” the pair said.
Following an insurance damage assessment, they may issue a claim check to both the reverse mortgage borrower and the servicer. “You will likely need to endorse the check and send it to your mortgage servicer,” they said.
Bad actors already go out of their way to target older homeowners, and may see an opportunity to exploit this crisis, according to the Celink representatives and other industry professionals who spoke with RMD.
“When making repairs, be cautious. Home repair scams and price gouging often increase when a natural disaster hits,” Balettie and Kelly said. “Get multiple bids, in writing, from established contractors with a physical address and be wary of unusually low bids. Ask for references from satisfied customers. Avoid paying contractors in cash with no paper trail.”
This caution was also echoed by George Morales, a longtime reverse mortgage professional who resides within the impacted area.
“Unfortunately, our older homeowners may have a propensity to be targeted more by scammers,” Morales said. “That’s been on my mind thinking about older homeowners in this area, particularly because my parents were reverse mortgage customers here before they passed.”
See more of our California wildfire coverage here.
