reverse loans and LESA
Okay, the dreaded FA went into effect on April 27, 2015 for all Reverse loans originated as of that date and thereafter. Ummm, so what does this mean to a possible borrower?
Do they have to qualify for the Reverse loan using FICO scores and income ratios? Is is going to be much more difficult to qualify for the FHA loan?
“NO”. It won’t. Anyone over age 62 and occupying their home will still be approved. However, more documentation will have to be collected by the Loan Officer when a potential borrower is applying for the loan.
Yes, I know. It’s a hassle and everyone hates paperwork.
Essentially, the borrowers’s cash flow VS housing obligations, credit card debt and any installment loans and monthly utilities will be subtracted from the borrower’s income.
And when the “dust settles”, if a couple living on the West Coast nets $998.00 after all expenses have been deducted from their income, then they won’t have to have an escrow account set up to pay future property taxes and homeowners insurance.
However, if they fall under that (what I consider a small number), and they have cash reserves such as a Savings or retirement funds and have never been late paying their property taxes or Home Owners’ insurance, then they will not be obligated to have funds set aside from the money they would receive from their Reverse loan.
So, going forward, all of this means that the borrower has to provide income documentation and any bank, investment or retirement statements to show their cash reserves.
In the end, it’s just going to take a bit longer to copy everything and then have an Underwriter “doodle” around with the calculations, before giving final approval to the transaction.
In the 14 years that I have been helping people apply for the Reverse loan, I frankly can’t think of anyone that would have not qualified for it under these new guidelines. My personal opinion, is that my future clients will be just fine and sail through the process.
I will give them a list of the necessary documentation they will need when I first meet with them for their consultation. Then when I return with their loan application, I will simply pick everything up at that time.
Due to the fact that I have been in Lending over 30 years and I have a great deal of experience documenting income and reserves for traditional mortgages, this is a “no brainer” for me. And I will always make every effort to make it easy and comfortable for my clients, too.