Reverse mortgages are typically held for the remainder of the borrower’s life, the length of which is being redefined every day. The past four years have wreaked havoc on retirement funds and pension plans, and this unfortunate financial situation has been stressful for borrowers. In light of this fact, it’s important that we carefully examine the borrower’s process so that we do not create any added, undue stress. The first two installments of this series addressed typical and expected borrower experiences, including repair administration challenges and occupancy requirements. This third and final installment will cover three inevitabilities in the reverse mortgage industry and in life itself: taxes, insurance and death.
Reverse mortgage borrowers are responsible for maintaining regular and timely payment of the taxes and insurance on their property. When the borrower has no money for taxes or insurance, a servicer is faced with a very complex and delicate situation. Some borrowers have family members who can help them and some have financial reserves outside of their reverse mortgage. Unfortunately, a percentage of any reverse servicing portfolio will represent borrowers who have little or no additional resources. In some cases, the borrower has only Social Security income to live on and has fully drawn and spent the proceeds of his reverse mortgage. However you feel about these situations (i.e., foreclose or ride it out), servicers must work diligently with these borrowers to resolve the default. Servicers must respect each borrower’s dignity and there is nothing easy about coming to a resolution in these cases.
The death of a borrower or the borrower’s spouse is, without a doubt, the most difficult and traumatic situation a servicer has to deal with—and this happens on a daily basis. Servicers work with grieving family members, offering gentle hand-holding and advice about their responsibilities regarding the loan, and perhaps even continuing to assist them by working alongside heirs for the next year to properly dispose of the property (in the event that the last surviving borrower has passed away). Servicers managing this process require the patience of a saint and the sensitivity and compassion of a funeral director. Celink servicing “honors a lifetime” and at no time is that more meaningful and true than at the end of a borrower’s life.
From an investor’s standpoint, I totally appreciate the need for return on investment. Today more than ever, I understand the need for multiple investors in the reverse mortgage space. The difficulty, as I see it, is a potential new investor’s lack of understanding about servicing the unique needs of reverse mortgage borrowers. The demographic composition of reverse mortgages is changing daily with the influx of retiring boomers who now qualify for the product. The majority of them come into the reverse marketplace as technically savvy and informed consumers and money managers. Servicing is evolving to meet their needs and serve them best.
Putting together a reverse mortgage securitization involves far more than just structuring the transaction. It is impossible to understand the reverse mortgage servicing process without understanding the very “high touch” aspects of the reverse mortgage product. The truest value of servicing extends above and beyond the cost of processing paperwork. When a servicer takes on a new loan for the life of the borrower, he becomes the calm, reassuring voice of reason for the lender, the monthly point of contact for all things financial, and the helpful hand to hold during grief and transition.