Financial Assessment To Strengthen Reverse Mortgage

Financial Assessment To Strengthen Reverse Mortgage

 Updated May 5th, 2015 –  Dallas, Texas

Important Information For Texas Reverse Mortgage

 

New Rules and Guidelines Implemented by the FHA and HUD to strengthen the financial soundness of a reverse mortgage.

On April 27th 2015, the Federal Housing Administration and Housing and Urban Development will adopted new rules and guidelines that are intended to make Home Equity Conversion Mortgage (HECM) a safer and more reliable financial option for senior home owners. These new rules and guidelines are identified and referred to as “financial assessment”. The addition of these new requirements and procedures will put into play additional safeguards for senior Texas  homeowners who are considering a reverse mortgage as an option to secure their financial future..

What are the new rules?

In short, the new changes will require reverse mortgage lenders to administer a financial assessment on potential borrowers. This financial assessment is required in order to assess reverse mortgage borrowers more closely and to assist challenged borrowers to meet their loan obligations. Beginning on all case numbers issued April 27, 2015, and after mortgagees will evaluate borrower’s answers on questions such as the following:

  • Will the borrower able to meet the financial obligations of the HECM?
  • Will the borrower fulfill the mortgage requirements?
  • Is the borrower obtaining a reverse mortgage to solve financial problems?
  • To what extent can the reverse mortgage provide a solution to any of those to borrower’s financial problems?

What is Life Expectancy Set-Aside?

If it is determined that the borrower has not proven to be willing or able to meet the financial obligations of a reverse mortgage, then the mortgagee must require a “Life Expectancy Set-Aside”. These set-aside funds will be allocated exclusively for paying the borrower’s loan obligations throughout the life of the loan. Also, reverse mortgage borrowers will be required to provide 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
  • Property charge verification
  • Residual Income Analysis
  • Documentation of extenuating circumstances or compensating factors
  • Calculations for life expectancy set asides
  • Residual Income shortfall set asides

New Requirements to make Reverse Mortgage Loans safer. These new requirements implemented by FHA and HUD are more extensive than past requirements, however,  the goal of FHA and HUD is to protect reverse mortgage borrowers from default as well as to enhance the soundness of the federally-insured HECM.  The HECM remains one of the nation’s safest loan products on the market.