The Servicing Process continued from page 29 She encourages LOs to be aware of the date when the repairs must be completed. Repairs are frequently required to be completed within six months of the origination. An additional six months can be obtained if the borrower has reasons for why the repairs could not be completed. But the borrower needs to contact the servicer for an extension before the initial expiration date. Homeowners still need to properly document that the work was completed. The instructions will be part of the packet sent to the borrower by the servicer; the packet will include a checklist, a contractor’s lien waiver for the contractor to close out repairs and a homeowner’s certification form that the repairs have been made. “And that checklist really is in plain language,” she says. “It says what you need to do before you start your repairs. We then tell them what they need to do while the work is being done, and then we tell them about the final inspection that’s going to be needed.” Flynne stresses that homeowners must understand they could lose access to their funds. “I’m asking that you help them understand that it’s there for a reason,” she adds. Borrowers also should understand the process when they have to file an insurance claim due to a fire or disaster. The insurance check will be made out to the borrower and the servicer. “That is shocking to the borrower because it’s kind of like, ‘Wait a minute. What is this all about? How do I cash this check when their name is there?’” she says. The reason the servicer’s name is on the insurance check is that the servicer must control the disbursement of those proceeds.” The process is a “huge dissatisfier” for borrowers, she adds. However, the process is predictable, and it works when they call their servicer. “But we end up peeling a lot of borrowers off the ceiling, nonetheless. You should be sure that you tell borrowers that there are complications on this,” Flynne says. Prepayments Borrowers can make prepayments at any time. But to keep the line of credit open, they must maintain a nominal balance, Flynne says. The prepayments will follow an order, with the money first going to the mortgage insurance premium, then to servicing fees, then to interest and finally to the remaining portion of the principal balance. A 1098 form will only be sent out if the borrower prepaid more than $600 in interest or if the loan was paid in full. Loan agreements will spell out those details, she also says, so LOs should refer borrowers to those passages, as well as other important details contained within the agreement, which is usually about 15 or so pages. “That document needs to be as comfortable to you as any document you work with,” she says. The process for payoff quotes also creates a lot of questions, depending on the status of a loan. For example, a loan in default or foreclosure will require greater turnaround times because the servicer must obtain the fees that might be incurred by attorneys or vendors. “A About Occupancy • Borrowers must certify their occupancy annually. • Borrowers should notify their servicer if they will be out of the home for more than two months. • Borrowers can be out of their homes for up to 12 months for health reasons. • The occupancy certification is mailed annually within 30 days of the closing date anniversary. A second notice is mailed 30 days later. • Phone calls begin 30 days later. • A property inspection will be ordered—and possibly a knock on the door—if the borrower has not responded. • The loan is required to be referred to the U.S. Department of Housing and Urban Development for approval to call due and payable. • Failure to complete the verification results in a default, and the line of credit is frozen. A foreclosure could commence. 30 REVERSE MORTGAGE / SEPTEMBER–OCTOBER 2023
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