In the last 72 hours I sent an e-mail to all my clients, consumers as well as professionals, in order to alert seniors, specifically those 62 or over, about the NEW FINANCIAL ASSESSMENT RULES for REVERSE MORTGAGES. Everyone has family, friends, neighbors, or associates that may be impacted.
The new rules were to take effect March 2, but have been postponed 30-60 days.
Bottom line, HUD is requiring lenders to “qualify” consumers applying for a Reverse Mortgage, regarding income, debt, credit and reserves. This is pretty much like a conventional loan with the exception that it may not hold to specific debt ratios. While it is necessary for some due diligence to be done in areas that have been somewhat neglected, causing undesirable circumstances, it is my opinion that the real culprits are the reverse mortgage loan hucksters. If you are 62, they would posture, you need a reverse mortgage. Nothing could be further from the truth in most cases as I have found from counseling seniors for over a decade. But this article is not written to weigh in on the pros and cons of why the new rules have been engaged, but rather to point out that many folks, who can qualify for a reverse mortgage now, will not be able to under the new rules. In the past there has not been any requirement to prove or document income or assets, for the most part. Even credit, though pulled on each reverse mortgage applicant has been very liberal in its evaluation and treatment.
Now, major changes have been made to the software all lenders have been using, to require obtaining very detailed information related to property insurance, property taxes, HOA dues, credit obligations, maintenance, utilities, household membership, and more. This information will be reviewed in light of the income and assets required per FHA, to pay for these things. Some of this will be based on life expectations, cash flow, type of assets, etc. If there is not an adequate income stream, calculated via special “tables” related to some of these areas then “required set asides” will be mandated. In other words the homeowner must have an approved amount of savings, investments, or retirement assets available to create these required “set asides” if the income is not adequate.
While there are good practical reasons for some of this, unfortunately there are many who will not meet some of these thresholds but who still could successfully manage a reverse mortgage without getting into trouble. These folks may be denied access to this very valuable product due to not meeting the new “Financial Assessment Guides”. Additionally, it does not appear that support from other family members not living in the home or from charitable institutions will be taken into consideration. It is possible I may have missed it somewhere in the 87 page Mortgagee Letter from FHA.
As I counsel seniors I frequently request that the client speak with other family members about this decision and its implications, and often end up speaking with those family members, answering questions and providing guidance where possible. I would not ever want a client to get into trouble and lose their home because they could not pay property taxes or insurance, or maintain their home.
I am for some reform, but this may be going too far. The jury will be out on this for at least a year or more I would imagine. BUT FOR NOW, THE NEW CHANGES ARE HUGE, AND THERE IS VERY LITTLE TIME BEFORE THEIR ENACTMENT.
Therefore, if you or a family member has any questions or concerns regarding the Reverse Mortgage, please call or e-mail me immediately to discuss. I am certain there are many folks out there right now that can successfully manage a Reverse Mortgage, but that will not qualify for one under the new rules.
Please pass this along to others as soon as possible.
I can be reached at 949-428-3099, or email@example.com