What’s reverse mortgage servicing?

Reverse mortgages provide a way for older homeowners to leverage the equity in their property to help carry them through retirement. Many older people who use a reverse mortgage find the reverse mortgage servicing part of their agreement confusing, since the mortgage servicer could change.

Once the reverse mortgage is approved and active, you will have a reverse mortgage servicer as your main point of contact for anything to do with your reverse mortgage. The servicer will make contact with you annually to check that you are still in residence and assist with debt counseling as needed through the lifetime of the mortgage. Should you fall behind on property upkeep or be unable to pay the loan when due, they will help you will debt management or even initiate foreclosure proceedings.

What is a reverse mortgage?

A reverse mortgage is a type of mortgage that is available to seniors aged 62 or older. It allows older homeowners to leverage their home equity into tax-free cash while still retaining ownership of the home. Instead of making mortgage payments (as in a traditional mortgage arrangement), borrowers receive their funds from the lender either as a lump sum, regular payments, or a line of credit somewhat similar to an access mortgage.

Homeowners are required to maintain all upkeep, property taxes, and homeowner insurance on the property, but other than that, there are no long-term requirements. If you believe you will need assistance with the regular property payments as you age, you can opt to add a LESA account to hold back funds to cover this aspect of homeownership. Here, they hold back part of the payment you receive to cover annual tax and homeowner insurance costs over your projected lifetime. The reverse mortgage will be repaid in total when the homeowner sells the property, moves out, or passes away.

As with any credit product, interest accrues on the reverse mortgage amount over time, falling due when the loan is repaid. Reverse mortgages can provide considerable financial flexibility for retirees but have complex terms and potential impacts on heirs and estate planning, so you should seek as much information when taking a reverse mortgage.

What is reverse mortgage servicing?

Reverse mortgage servicing refers to the management and administration of reverse mortgage loans. A reverse mortgage goes through different cycles during the life of the loan, starting with the loan origination stage, where you apply for your loan as an open application.

If your application is successful, this application goes to closing and then enters the servicing stage, where you start receiving disbursements, either as monthly payments, a lump sum payment, or a line of credit. The reverse mortgage servicing company will be your main point of contact regarding your loan from that point forward.

However, be aware that the reverse mortgage service may be different from the lender who approved your reverse mortgage. If the originating lender retains reverse mortgage servicing, your contact person/department will likely be different. So, it is important to always know who is servicing the loan, and how to contact them.

Duties of reverse mortgage servicing

Once you have gone through the reverse mortgage approval process, you move on to the servicing of the reverse mortgage- the phase where you receive disbursements from the equity in your home. Reverse mortgage servicing involves the following key areas:

Payment disbursement

The servicing company is responsible for ensuring that you receive the agreed-upon payments on time and in your chosen method (e.g., monthly checks, direct deposits, or line of credit access).

Account management

Servicers maintain records of the reverse mortgage account, including the loan balance, interest accrual, and any outstanding fees. They provide you with statements detailing the status of their reverse mortgage so you always know where you stand.

Communication

Servicers often act as a point of contact for you, addressing any questions or concerns you may have about your reverse mortgage. This includes explaining the terms and conditions of the loan and discussing potential options and consequences of falling back on your obligations.

Tax and insurance payments

If you add a LESA account to your reverse mortgage, it will be administered by the reverse mortgage servicer. The servicer may help you manage your property taxes and homeowners insurance from the portion of the loan funds set aside to cover these expenses. They ensure that these obligations are met to avoid defaults on the loan, so you don’t have to.

Loan counseling

Good reverse mortgage servicers should provide loan counseling and information about your financial responsibilities and options as a reverse mortgage holder. This might include counseling on the loan repayment, helping to avoid foreclosure if you fall back or have insufficient funds to cover your obligations, and making resources available to help you better understand your loan.

Default management

In the unfortunate cases where you can’t meet your financial obligations related to the reverse mortgage, the servicing company will be responsible for initiating foreclosure proceedings and selling the property to recover the loan balance on behalf of the lender. The servicer will also help you avert foreclosure by providing all alternatives to foreclosure should this unhappy circumstance arise.

Picking a reverse mortgage servicer

In most cases, you won’t have much of a choice of who services your loan. Even if the lender promises they directly service their loans, things could change over time. So, it is inevitable you will change mortgage servicers at some point.

Remember, a reverse mortgage servicer cannot change your loan agreements, and they only perform functions around what you agreed with your lender. Therefore, if your reverse mortgage servicing firm changes, your loan doesn’t- just the people you talk to will change.

This means you must choose a reputable and experienced reverse mortgage lender, understand who will service the mortgage, and fully understand the terms and implications of your reverse mortgage before entering into any agreement.

How often do you interact with your reverse mortgage servicer?

Once a year, you will sign an annual occupancy certificate sent from the servicer, to confirm you are still alive and at the home the mortgage was granted for. You need to sign and return this certificate within 30 days or risk the loan.

Unless you have any issues to manage, the other major time you interact with the servicer will be at the end of the loan period. This happens when you vacate the home for more than 12 months when you die or are unable to pay taxes and insurance on the property.

Reverse mortgages end when you pay off the loan in full, agree to a short-sale of the property (95% of appraised value), have the property foreclosed on due to failure to maintain it, or allow a deed in lieu of foreclosure- where you sign the property over to the lender in lieu of payment. A reverse mortgage is a ‘non-recourse’ loan, and your heirs/estate will not be negatively impacted by choosing those options, although they will not keep the home.