After much anticipation, HUD has released guidance for reverse mortgage financial assessment. This new change will affect all borrowers whose case numbers are assigned on or after March 2, 2015. HUD states “the purpose of financial assessment is to evaluate a mortgagor’s willingness and ability to meet his/her financial obligations and to comply with the mortgage requirements.” In other words, which we will refer to frequently; willingness and capacity.

“The financial assessment will be used to determine whether, and under what conditions, the mortgagor meets FHA eligibility criteria and whether an allocation of HECM proceeds will be required for payment of property charges.”

Financial assessment was outlined in Mortgagee Letters ML 2014-21 and ML 2014-22 and references the HECM Financial Assessment and Property Charge Guide, which is the official guide lenders will use when underwriting reverse mortgages post March 2, 2015.

What does all this mean and how will it impact you?

Although, we have only just begun to analyze the new financial assessment guidelines, there are a few possibilities that we foresee. One, you have sufficient income and assets to qualify and the loan goes through without a hiccup. Two, you do not have sufficient income to qualify, but you have compensating factors, which prove your willingness. Because of this, a lifetime set aside for taxes and insurance will be created or the borrower may authorize the lender to pay property charges from the HECM monthly payments or Line of Credit as they come due (as we get closer to the implementation date, we should have a better feel for how our wholesale lenders will handle the lifetime tax and insurance set aside). The third option is that a borrower may not qualify and will be unable to obtain a reverse mortgage.

The bottom line is that the days of of borrowers obtaining a reverse mortgage without having to income or credit qualify are soon to be a fading memory.

Our advise is that if you have been a fence sitter, waiting for the right opportunity to take advantage of a reverse mortgage, perhaps now is the time to move forward. Our company prefers educating clients and not fear selling, but we do feel that this change will have a major impact on many borrowers ability to obtain a reverse mortgage. As with all major program changes, as we near the implementation date, we will see a slowdown in services, such as counseling, which is required to have completed prior to obtaining a case number.

So, if you’ve been waiting for the right time, now may be that time. Feel free to call us toll free at 1-888-888-4834 to learn more about a reverse mortgage or request a free quote. Again, we love to educate borrowers first and should a reverse mortgage be the right fit for their situation, we will work extremely hard to offer a competitive rate that goes along with our amazing service.

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After much anticipation and speculation, the Department of Housing and Urban Development (HUD) has released a multitude of changes to the HECM program. “These changes to reverse mortgages will protect consumers,” according to Carol Galante, Federal Housing Administration (FHA) Commissioner and Assistant Secretary for Housing.

The following is a summary of the changes that were announced by Mortgagee Letters 2013-27 and 2013-28:

Initial Disbursement Limits (Effective September 30, 2013)

The new Mortgagee Letter sets limits on the amount of reverse mortgage proceeds that can be taken at closing or during the first 12-month disbursement period after the loan closes.

Single Disbursement Lump Sum Option (Effective September 30, 2013)

The intial disbursement at closing or 12 months following close is limited to 60% of the principal limit. If there are mandatory obligations, such as existing mortgages or tax liens, the initial disbursment is limited to 60% plus 10% of the principal limit.

If a borrower chooses a line of credit or monthly payment, it will be up to the servicer to make sure that they do not exceed the  of allowable limits in the 12 months.

This option is available for both fixed and adjustable rates.

Changes to Mortgage Insurance Premiums (MIP) and Principal Limit Factors (PLF) (Effective September 30, 2013)

The existing upfront MIP pricing options that were available under the Saver and Standard program have been replaced. HUD will now charge an initial MIP of 0.50 percent (0.50%), of the Maximum Claim Amount (MCA) when a borrower’s initial disbursement at closing or during the initial 12 month period after closing is 60% or less of the Principal Limit.

HUD will charge 2.50 percent (2.50%) of the MCA when a borrower’s intial draw is greater than 60% of the Principal Limit.

The new Principal Limit factors will result in roughly 15% less available proceeds than the current Standard product. To view the new PLFs click here.

Financial Assessment (Effective January 13, 2014)

The purpose of financial assessment is to evaluate the borrowers willingness and capacity to meet their financial obligations, and their ability to comply with the mortgage requirements. This came about because of an increasing number of tax and insurance defaults by HECM borrowers. It is the responsiblity of the borrower to maintain their property taxes and insurance.

Key components of underwriting a HECM includes a credit history analysis, a cash flow/ residual income analysis, analyzing compensating factors and extenuating circumstances. The good thing is that unlike many other companies that only offer reverse mortgages, MLS Reverse Mortgage has been offering both forward and reverse mortgages, which makes us extremely familiar with credit and income analysis, which will allow us to simplify the process for our borrowers.

Set-Asides (Effective January 13, 2014)

If a borrower is deemed to be a potential default risk based on the underwriting results of the financial assessment, the lender is authorized to create a Lifetime Expectancy Set-Aside (LE Set-Aside) to pay for future tax and insurance charges. The amount of the LE Set-Aside will be based on the life expectancy of the yourgest borrower. If the borrower outlives the amount set-aside, they will be required to continue making tax and insurance payments using their own means.

The full Mortgagee Letters are available by clicking here.

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