Can an HECM Become Delinquent?
Missing a single payment isn't necessarily the road to foreclosure, but it's crucial to act quickly to stay far away from issues related to FHA loan default and/or foreclosure proceedings. And believe it or not, this advice applies even to FHA HECM loans.
The FHA Home Equity Conversion Mortgage program features no monthly mortgage payments of any kind. Qualified borrowers aged 62 or older wouldn't seem to be affected by default issues in the same way, since a HECM loan is designed to give the borrower access to funds supplied using the equity in the property as the security for the loan.
No money is due until the borrower dies or sells the home, so how could a HECM loan applicant possibly default on an FHA HECM?
According to FHA rules, it IS possible, if the homeowner with a HECM does not meet the obligations spelled out in FHA requirements with regard to taxes and insurance.
"The borrower shall maintain hazard insurance on the property in an amount acceptable to the Secretary and the mortgagee.the borrower must pay taxes, hazard insurance premiums, ground rents and assessments in a timely manner, except to the extent such property charges are paid by the mortgagee in accordance with § 206.205."
That's according to the FHA official site and FHA.gov, which also adds that property taxes and the required insurance payments must be made-otherwise the FHA considers the loan to be delinquent.
All FHA HECM loans require mandatory counseling prior to loan approval, and the default issue is just one reason for that requirement. HECM loan applicants must, according to federal regulations, be made fully aware of their financial obligations on an FHA HECM--even though there is no mortgage payment due, the borrower cannot ignore property tax requirements and insurance.
Lenders have more than one option or payment method which can be used to HECM clients paid in full on taxes and insurance. The lender may require HECM borrowers to put money in an escrow account for such payments, or automatic payments could be arranged.
HECM borrowers must understand they are not immune from loan delinquency issues, even though they aren't making mortgage payments. Under FHA rules, missing tax or insurance payments could result in the HECM being called due, payable in full under the terms of the loan contract.
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