By Peter Bell, President of the National Reverse Mortgage Lenders Association

Reverse mortgages were originally established to help seniors age in place. They allow seniors to lower monthly expenses by paying off consumer debt, refinancing an existing mortgage on the home, or by simply giving access to extra cash to pay for medical or other unexpected expenses.

Since home equity is often the largest available asset, reverse-mortgage lenders, along with congress and the U.S. Department of Housing and Urban Development (HUD), put a number of important safeguards in place to ensure that seniors are protected. These safeguards include mandatory, independent pre-application counseling to ensure prospective borrowers understand the loan; FHA insurance to protect borrowers, should the loan balance surpass the value of the home or in the event a lender company dissolves; and dedicated servicers that ensure borrowers are meeting their obligations.

In these tough economic times, some people find themselves unable to keep up on their real-estate tax and insurance payments. A condition of a reverse mortgage is the obligation of the borrower to remain current on their real-estate tax and property insurance charges. Some borrowers, less than five percent of the total population of reverse-mortgage borrowers, have found these tax and/or insurance charges difficult to maintain. This typically happens when borrowers experience a life event that affects their finances, such as a death in the family or a long hospital stay. While falling behind on tax and insurance payments can lead to a technical default of the reverse mortgage, there are significant safeguards and services in place to help borrowers stay in their homes.

Indeed, in this case, the servicer is your safeguard. Once a loan is closed, the servicer becomes the borrower’s point of contact regarding a reverse mortgage. The servicer provides a borrower with a statement to keep them apprised of the loan balance and costs, but most importantly, the servicer is there to help borrowers, should they fall behind on their tax and insurance payments.

Servicers are there to help borrowers stay in their homes. Especially for those finding tax and insurance payments difficult to make, potential pitfalls are easy to avoid when working with the servicer. “The worst thing a borrower can do is to stop communicating,” says Ryan LaRose, chief operating officer of Celink, a reverse-mortgage servicer who works with thousands of reverse-mortgage borrowers. “Every reverse-mortgage servicer has a specialized department dedicated to helping borrowers in tax and insurance default,” LaRose explains. “The fact is, the sooner borrowers reach out to their lenders, the more options are available to them.”

The first step servicers will take to help borrowers is to refer them to a specialized, independent reverse-mortgage counselor. These counselors will provide borrowers with free Home Equity Conversion Mortgage (HECM) default counseling session through HUD. During these counseling sessions, HUD counselors work with the borrower to create a budget, search for local programs, identify government assistance that might be helpful to borrowers, and finally, help determine if a borrower is capable of repaying the tax and insurance fees advanced by lenders on behalf of the borrowers within the 24-month timeframe established by HUD. If a borrower cannot remain in the home, counselors will help borrowers transition to another form of housing.

Experience confirms that most borrowers are able to secure the funds necessary to repay their loans. These borrowers are referred back to the lender with information from their counseling session needed to establish a repayment plan. Lenders recommend repaying the loan as soon as possible to both reduce interest charges and to avoid the likelihood of an event that might impact a borrower’s repayment schedule.

The National Reverse Mortgage Loan Association (NRMLA) and the reverse-mortgage industry partnered with HUD to make the reverse mortgage one of the safest financial products available to consumers. Indeed, no other financial product has the consumer safeguards of a reverse mortgage, and lenders have well-conceived and unique programs available to help borrowers age in place. The NRMLA is dedicated to consumer protection. More information, click on our website, www.reversemortgage.org.