November 2014

Reverse Loans VS Traditional Refinances

Over the last few years there have been numerous changes to the FHA Reverse loan program, the most recent one concerning the “Non-Borrowing-Spouse” and changes in the Principal Limit that determine how much money a borrower can receive from a Reverse mortgage.

The changes have been beneficial to the federal loan program and the intent as we move forward, is to be sure that there will always be sufficient   funds in the Mortgage Insurance Premium  pool and the Reverse loan program will maintain it’s stability and an option for seniors well into the future.

However, there is a new change taking effect next month that I just learned about this morning.   And that concerns any conventional, non HECM  liens on a property that a potential borrower for a Reverse loan, has taken out in the previous 12 months.

Effective December 15, 2014, there must be evidence that the homeowner has  made 12 consecutive and timely payments on the mortgage and or no more than $500.00 was used at any one time from “said” mortgage

If someone is putting off applying for a Reverse loan because they are concerned about the costs ( which have come down) and apply for a traditional loan or  HELOC ( And receive less money and have mortgage payments), they will not be eligible for a Reverse mortgage.

They will have to wait an entire year before they will be eligible for the federal loan program.This is serious and could have a devastating effect on someone that needs additional funds and will have to wait.

HUD Mortgagee Letter 2014-22 and New Seasoning Requirements

“In regard to these seasoning requirements, mortgagees may only permit the payoff of existing non-HECM liens using HECM proceeds if the liens have been in place longer than 12 months or if they have resulted in less than $500 cash to the mortgagor, whether at closing or through cumulative draws, ML 2014-22 [2] states.

The seasoning requirements are effective for all case numbers assigned on or after Dec. 15, 2014.

This guidance, and its timing, could make some prospective borrowers — who otherwise could have qualified — ineligible for a reverse mortgage, at least in the near term.”

Written by Emily Study


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Reverse Loan Applicants and Financial Assessment

If you read the previous part of the article in an earlier post, then you are aware of the pending changes that will take place on March 2, 2015 for anyone applying for the FHA Reverse mortgage.   The point of the assessments is to determine whether or not the potential applicant will have the capacity to continue to pay their property taxes and keep their home insured.

At this time, it is not clear what type of documentation will be required from the applicant to verify income and residual cash flow, but more than likely it will be bank statements, copes of Social Security and or pension income.

Reverse mortgages are beginning to sound like a traditional loan, as the documentation will be very similar.

HUD Releases Reverse Mortgage Financial Assessment to Take Effect March 2015

Posted By Elizabeth Ecker On November 10, 2014 @ 1:39 pm In News,Reverse Mortgage

The mortgagee letter also specifies documents [3] that must be collected and submitted for all borrowers. The documentation has been updated to include “Financial Assessment Documentation” that includes, but is not limited to, credit history documentation, income verification, asset verification, property charge verification, residual income analysis, documentation of extenuating circumstances or compensating factors, and calculations for life expectancy set asides and residual income shortfall set asides.

According to HUD, the lender must evaluate the borrower’s “willingness and capacity to timely meet his or her financial obligations and to comply with the mortgage requirements.

“Where the mortgagor has not demonstrated the willingness to meet his or her financial obligations as stated above and no extenuating circumstances can be documented, the mortgagee must require a fully funded Life Expectancy Set-Aside.”

The assessment refers to previous mortgagee letters that drafted the financial assessment but takes the place of those mortgagee letters with some changes.

The changes are likely to present tailwinds, rather than headwinds, one executive told attendees of the National Reverse Mortgage Lenders Association national conference in Miami on Monday.

Written by Elizabeth Ecker

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Financial Assessment Coming for Reverse Loans

HUD issued their announcement in regards to when the Financial Assessments for Reverse loan applicants will go into effect.   We have been waiting throughout the year for the commencement date and anticipating this next level of protection for the borrowers who are applying for a Reverse mortgage.

Here is a copy of an article that discusses the announcement and what we in the Reverse loan industry can expect and what type of documentation the potential borrower will be tasked to provide as part of the loan application.

HUD Releases Reverse Mortgage Financial Assessment to Take Effect March 2015

Posted By Elizabeth Ecker On November 10, 2014 @ 1:39 pm In News,Reverse Mortgage | No Comments

The Department of Housing and Urban Development has issued a financial assessment for reverse mortgage borrowers that will take effect for all case numbers issued on or after March 2, 2015.

The financial assessment [1] is detailed by HUD through Mortgagee Letter 2014-22 [2] published Monday. For borrowers who do not demonstrate their willingness to meet their loan obligations, a fully-funded life expectancy set-aside will be required.

“The mortgagee must evaluate the mortgagor’s willingness and capacity to timely meet his or her financial obligations and to comply with the mortgage requirements,” HUD writes in defining the purpose of the financial assessment. “In conducting this financial assessment, mortgagees must take into consideration that some mortgagors seek a HECM due to financial difficulties, which may be reflected in the mortgagor’s credit report and/or property charge payment history. The mortgagee must also consider to what extent the proceeds of the HECM could provide a solution to any such financial difficulties.”

I will share the remainder of this article in a following post.

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More on “Kosher” Reverse Mortgages

Okay, so if you read the previous post, you are getting the idea behind Jack Guttentag’s suggestion, that somehow a certification be created that would label Reverse loans as “safe” for the consumer.

Jack Guttentag is known as The Mortgage Professor and has written a number of articles supporting the use of Reverse loans for retirement planning and covering the costs of aging in place.

This is a unique vision that he has suggested on how to improve the understanding of how Reverse loans function and especially why they should be considered safe and an option to fund longevity.    After all, most people have not planned for future medical expenses and in many situations, will potentially outlive their financial resources.

Here is the remaining part of the summary, discussing his point of view.

“A kosher HECM, Guttentag writes, would be a transparent loan that doesn’t have unanticipated surprises down the road that could make the borrower regret taking out a HECM.

Among other features, the set of options for drawing funds would be the best of those available to the senior; the combination of interest rate and upfront settlement costs also would be the best available; and the final price set on the lock date would be immune to manipulation.

The product would be offered by kosher HECM loan advisers, much like a kosher butcher would sell kosher meat. These advisers would stress the importance of long-range planning, counter to the common senior bias toward excessive cash withdrawals, the article states.

Kosher loan advisers would also develop and demonstrate a unique plan for each applicant, providing price transparency and lock-price integrity.

It follows, then, that a kosher HECM system would provide full disclosure of the product’s features, giving seniors upfront comparisons of prices and available options.”

Read the full article here:

Written by Emily Study [4]

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A “Kosher” Reverse Loan?

I found this summary of an article that was published by Jack Guttentag, otherwise known at the Mortgage Professor, to be amusing.   It certainly is an interesting suggestion to “certify” Reverse mortgages in a way to make it easier to navigate the myths and realities of how they function and sort the truth from the ignorance.

He may be on to something and I’m going to share is point of view on this intriguing idea he discussed in the following article.

Mortgage Prof.: ‘Kosher’ Reverse Mortgages Would Simplify Product

Posted By Emily Study On October 19, 2014 @ 5:32 pm In Commentary,HECM,News,Reverse Mortgage | No Comments

“In the complex world of home equity conversion mortgages (HECMs), a certification process would make it easier for seniors to navigate these financial products, writes [1] Jack Guttentag, of The Mortgage Professor.

And the best way to do so? Label them “kosher.”

The kosher stamp on food means that it has been certified as fit for human consumption, satisfying the requirements of Jewish law. Similarly, a kosher HECM — which does not yet exist, but will soon, Guttentag suggests — would indicate the financial instrument is safe for consumers.

Reverse mortgages have long been associated with “horror stories” reported by the media. But since significant reverse mortgage program changes, the product has received nods [2] from many in the financial planning community, along with the media [3].

Still, a kosher HECM, in addition to kosher HECM loan advisers and systems, would provide a clear picture of what the product is — with no surprises. ”

I will provide the rest of the article in a following post.

However, if reading this causes a few laughs and comments, please share your thoughts.   Or just contact me.


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