HUD issues dates for implementation of financial assessment for reverse mortgages.

In 2013, HUD shocked the reverse mortgage world by announcing that they planned to implement financial assessment guidelines in response to the heavy losses the program sustained in 2012.  The guidelines were set to require borrowers to qualify on the basis of income and past credit history for the first time to obtain a reverse mortgage.  However, at the end of 2013 the heavy losses sustained just one year earlier in 2012 were not present.

Many credited the turnaround to a number of different factors.  The losses in 2012 were presumably from loans originated in 2007 and before when property values were at their peak, 2012 had not yet seen any real appreciation in most of the country, and the recent changes HUD had made to the program to trim losses had not really kicked in yet.

Then HUD further changed the program by not allowing borrowers access to all funds available to them under the program unless they were paying off “mandatory obligations” with the HECM proceeds (mandatory obligations were debts and liens already on the subject property).

Many hoped that the recent changes in the HUD program combined with the market appreciation might eliminate the need for the implementation of the Financial Assessment guidelines and the fact that deadline dates came and went on which HUD did not announce the requirement for lenders to implement the guidelines further lead lenders and borrowers to hope that possibly that HUD had determined that there was not necessarily the need for Financial Assessment in the HECM program that they once felt was so pressing…until now!

On Monday, November 10, 2014, HUD announced that effective with all new case numbers issued on April 27, 2015 all borrowers would be subject to the New Financial Assessment Guidelines (link to official guide) as outlined in the Mortgagee Letters  ML 2014-21 and ML 2014-22.  The changes to the program are sweeping and as of the writing of this announcement, we have not even had the opportunity to analyze the full effect of all the changes.

There are also some provisions for lifetime set asides for taxes and insurance but at this writing, it is unclear how that will affect borrowers’ abilities to qualify and the costs of the loan.  Currently most loans are available without servicing fees but once lenders have to administer impound accounts and do more than send out a monthly statement, those monthly costs might also reappear on the new HECM loans with impounds for taxes and insurance.  However, one thing is clear, gone are the days that borrowers can obtain a reverse mortgage without having to income or credit qualify. 

If you planned to obtain a reverse mortgage but were waiting for some reason or another and you think that you might have credit issues (delinquent credit obligations, collections, past due taxes or mortgage payments, etc) or if you are concerned that your income may not be sufficient to qualify under the new guidelines and you don’t want to wait to see what the new guidelines will do to your ability to qualify or the costs of the loan, you have until April 27, 2015 to start your reverse mortgage loan under the old parameters.

Borrowers on any new loans begun after that date must meet the income and credit requirements as outlined in the Mortgagee Letters above.

We do not believe in panic lending, however this is the most sweeping change in the history of the reverse mortgage program.  If you have been considering a reverse mortgage, we strongly urge you to consider starting your loan before the new changes go into effect (April 27, 2015) if you think they might impact your ability to utilize the program.

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