Reverse Loan and Financial Assessment

The possibility of some sort of financial and credit review for Reverse loans, has been under discussion for quite some time and as of March 2, 2015 will go into effect on any Reverse loans submitted March 2nd and thereafter. Following is a description of for this new process.

“Based on Mortgagee Letter 2014-21 and 22, including the HECM Financial Assessment and Property Charge guide, issued on November 10, 2014, all Reverse loan Lenders will be using the Financial Assessment (FA) to evaluate whether a borrower qualifies for the HECM loan, and under what conditions.

It specifically it looks at “willingness” and “capacity” of the borrower to meet his or her financial obligations and meet HECM requirements.

Willingness: Past performance and credit history.

Capacity: Using income, assets and expenses to calculate residual cash flow. The Financial Assessment will become effective, industrywide, on March 2, 2015”

The bottom line is this: All potential borrowers will be required to have any income documented and that may include 2 years of Federal tax returns, etc. Plus any bank statements to support savings and cash reserves. This could be a burden to the client to provide and make the process a little bit more of a hassle for them.

Depending on the review of the borrower’s capacity, it may be determined to create a “Life Expectany Set-Aside” ( LESA) using funds from the Reverse loan to pay for future property taxes and Homeowners Insurance.

I don’t believe that unlike a traditional loan, a potential borrower for a Reverse loan will be declined based on their income or credit history.

But it will take longer to process the loan and the potential impact to the borrower, may mean less money to them at the close of Escrow if it’s determined that the client needs funds to be set-aside for future borrower obligations.

So if someone has been hesitating about applying for a Reverse mortgage, I would suggest that they get started on it before March 2nd., otherwise the new regulations and requirements in regards to qualifying, may turn into a problem for them.

Get “off the fence” and don’t wait any longer.

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