Possible Application to Los Angeles
The Home Equity Reverse Mortgage Information Technology (HERMIT) system, initiated in 2012, plays a crucial role in refining the Home Equity Conversion Mortgage (HECM) approval process, along with enhancing servicing and claims processing at the Department of Housing and Urban Development (HUD). In light of the devastating wildfires that recently struck Los Angeles, the Reverse Mortgage Daily (RMD) reached out to HUD to gain insight into how these events may have impacted HECM borrowers.
A spokesperson from HUD emphasized the significance of the safeguards introduced in 2023, stating, “These safeguards we introduced continue to apply to all HECM borrowers.” This assurance comes amidst the ongoing crisis for many residents directly affected by the wildfires. The application of reverse mortgages in contexts like this remains a crucial area of exploration, particularly for those who may need additional financial support following such disasters.
In exploring the situation further, Jared Sklavara from Reverse Market Insights (RMI), an asset management and market monitoring firm, shared his thoughts on how the HERMIT system is adapting to these circumstances. “HUD has taken additional steps to ensure that system alerts and flags for properties located in Presidentially Declared Major Disaster Areas (PDMDAs) are prominent within the HERMIT system,” Sklavara explained. This new emphasis is a proactive measure intended to protect homeowners in distressing situations like that posed by recent natural disasters.
Since September 2023, these protective measures have included adjustments to HERMIT’s functionality, which now features “Loan Header Scrolling Text.” This update allows important alerts, such as those pertaining to properties in PDMDAs, to appear in red at the top of the screen during the loan review process. Sklavara noted, “Alerts are an effective way to draw attention to properties located in PDMDA,” highlighting the system’s focus on safeguarding borrowers during challenging times.
President Joe Biden’s disaster declaration for the Los Angeles area on January 8 further underscores the seriousness of the situation. According to Sklavara, additional reviews by reverse mortgage servicers are anticipated to understand the implications for residents impacted by the wildfires. “From a servicing perspective, we expect HECM servicers to take additional steps to protect borrowers who must vacate their properties due to natural disasters and to prevent unnecessary loan acceleration,” he remarked.
This proactive scrutiny from servicers is essential, considering the potential economic strain on those affected. Sklavara maintains that there will likely be increased awareness and sensitivity regarding these cases, as servicers aim to thoroughly evaluate circumstances before proceeding with any due and payable claims. This reflects a responsible approach to managing loan obligations for individuals facing significant hardships.
Borrowers Have Options in the Event of a Disaster
In conjunction with the HERMIT safeguards, the Federal Housing Administration (FHA) has also issued new guidance aimed at assisting lenders involved in the repayment and origination of FHA-backed loans in PDMDAs, which includes HECMs. This announcement reinforces the safety net available to homeowners in times of crisis. “Under the PMDDA, FHA provides HECM mortgagees with an automatic 90-day extension from the expiration date of the PMDDA foreclosure moratorium to the commencement or reopening of foreclosure proceedings,” the notice detailed. This measure offers critical support to borrowers during the turbulent period following a disaster.
Importantly, HECM loans that become due and payable for reasons beyond the “death of the last surviving borrower and ineligible spouse” will be subject to this 90-day extension as well, providing further relief. Industry experts including Sklavara and Gail Baretti, senior vice president at Celink, previously outlined several strategies for HECM borrowers who find themselves in the unfortunate position of facing the consequences of fires or similar disasters.
Conclusion
The application of reverse mortgages, especially in the wake of disasters like the Los Angeles wildfires, showcases the need for robust support systems to protect borrowers from undue financial burdens. The HERMIT system’s updates and FHA guidelines provide a multifaceted approach to ensuring that HECM borrowers receive necessary assistance during critical times. As the landscape of reverse mortgage lending continues to change, it is clear that HUD and related agencies are committed to adapting their practices to safeguard vulnerable homeowners. Staying informed about available options can empower borrowers, allowing them to navigate their unique situations with greater peace of mind.
FAQs
1. What is the HERMIT system?
The Home Equity Reverse Mortgage Information Technology (HERMIT) system is a platform implemented by HUD to streamline the HECM approval process, servicing, and claims processing.
2. How do the recent wildfires affect HECM borrowers?
HECM borrowers affected by the wildfires may receive additional safeguards and extensions regarding loan repayments and foreclosures, particularly if their property falls within a Presidentially Declared Major Disaster Area (PDMDA).
3. What are the safeguards introduced in 2023 for HECM borrowers?
The safeguards include enhanced alerts in the HERMIT system that prioritize properties located in PDMDAs, as well as extended guidelines for loan repayment and foreclosure procedures.
4. What happens if a borrower must vacate their property due to a disaster?
Borrowers may have access to a 90-day extension on the foreclosure timeline, which can provide critical breathing room during recovery periods following a disaster.
5. Who can I contact for more information if I’m a HECM borrower affected by a disaster?
Affected borrowers should contact their reverse mortgage servicer or consult with local housing counseling agencies for tailored assistance and guidance specific to their situations.
