Reverse Mortgages (NPNs) Pros & Cons

[Andy Mirza]

We're looking at a tape consisting mostly of defaulted reverse mortgages. The borrowers have passed away and no heirs have showed up to take care of the estates. Most  are underwater but some have equity. All are vacant.

We've never acquired reverse mortgages before and are reaching out to our various sources to learn more and understand the risks. I thought I'd reach out to the group as well to see if someone could share their experiences.

What are the pros & cons of reverse mortgage NPNs?

It seems like the risks are low:

The payoff increases with time

Borrower has passed with no heirs to interfere since oftentimes the estates are insolvent

Vacant

Cons:

The rare heir who might raise issues after you purchase the defaulted reverse mortgage

Dealing with probate (we already do this regularly on other loans)

Having less tools to work with a borrower (not really our business model)

Higher chance of getting an REO (not an issue for us either)

Other thoughts out there?

[Bob Malecki]

I agree with @Chad U. on the deal points and condition of the property. I bought a half dozen HECMs a few years ago and resold them as REO after foreclosure or quitclaim deed. One of the caveats is that many times the interiors still have a HUGE amount of trash from the deceased borrower, especially if not heirs are around to clean up , so factor in a generous trashout budget. These loans should include an aged inspection report for the interior with winterization and those juicy photos of trash in every room. Also look for heirs to see if they are willing to QCD the property to you to mitigate foreclosur expenses, especially if you are looking to take the property and sell REO. 3 out of the six loans I purchased had the kids deed the property over.

Also, check with your servicer to see if they will board the loan. FCI does not, but Madison and a few others will. Since there are no future payments to manage, you could technically self service, but I always like to have a servicer on my side.