For the last few months, the reverse mortgage industry has been preparing for a change called Financial Assessment, which was originally slated to be implemented on March 2, 2015. However, the Federal Housing Administration’s Department of Housing and Urban Development (HUD) has announced that due to a delay in the delivery of necessary system enhancements, the original date was postponed instead to become effective April 27th 2015.
This financial assessment process is conducive to making the Home Equity Conversion Mortgage (HECM) an even safer loan product and will further protect senior Americans who are interested in reverse mortgages. In essence, the new changes will require mortgagees to conduct the financial assessment in order to evaluate reverse mortgage borrowers more thoroughly and to provide at risk borrowers with the means to meet their loan obligations. Effective for all case numbers issued on or after April 27th 2015, mortgagees will evaluate borrowers on the answers to questions such as the following:
• Is the borrower capable of meeting financial obligations of the HECM?
• Is the borrower willing to comply with mortgage requirements?
• Is the borrower getting a reverse mortgage as a solution to financial difficulties that they may have, as reflected in their credit report and property charge payment history?
• If so, to what extent could the reverse mortgage actually provide a solution to any of those financial difficulties?
If it is found that the borrower has not demonstrated willingness or ability to meet financial obligations, then the mortgagee must require a “Life Expectancy Set-Aside”. These funds will be allocated specifically to paying the borrower’s loan obligations throughout the life of the loan. In addition, mortgagees will as well require certain additional documents. This documentation includes the following:
• Credit history documentation
• Income verification
• Asset verification
• Property charge verification
• Residual Income Analysis
• Documentation of extenuating circumstances or compensating factors
• Calculations for life expectancy set asides
• Residual Income shortfall set asides
Although these new requirements are more extensive than past requirements, they will ultimately serve to protect countless reverse mortgage borrowers from default as well as further contribute to making the federally-insured HECM one of the nation’s safest loan products in the market to date.
Ecker, Elizabeth. “HUD Releases Reverse Mortgage Financial Assessment to Take Effect March 2015”. ReverseMortgageDaily.com. NP. 10 Nov 2014. Web. 17 Nov 2014. http://reversemortgagedaily.com/2014/11/10/hud-releases-reverse-mortgage-financial-assessment-to-take-effect-march-2015/
“Mortgagee Letter 2015-06”. HUD.gov. U.S. Department of Housing and Urban Development. 26 Feb 2015. Web. 24 Mar 2015. http://portal.hud.gov/hudportal/documents/huddoc?id=15-06ml.pdf
“Mortgagee Letter 2014-22”. HUD.gov. U.S. Department of Housing and Urban Development. 10 Nov 2014. Web. 17 Nov 2014. http://portal.hud.gov/hudportal/documents/huddoc?id=14-22ml.pdf