A key development in the overhaul of HECM guidelines was the introduction of the LESA.  This requirement is a response to past challenges where borrowers, after receiving a lump-sum equity payment, struggled to meet essential obligations such as homeowners insurance, property taxes, and home maintenance to FHA standards, leading to defaults.

The LESA is designed to ensure that property charges are managed effectively, safeguarding borrowers from the risk of default.

Pie Chart Showing How the Reverse Mortgage Set-Aside (LESA) Works

The Security of a LESA with a Reverse Mortgage

The Life Expectancy Set Aside (LESA) is revolutionizing how borrowers approach reverse mortgages, offering a new layer of financial security and stability.  Functioning similarly to an escrow account used in traditional forward mortgages for taxes and insurance, LESA is tailored based on the borrower’s age and life expectancy.

This approach ensures that funds such as homeowners insurance and property taxes are allocated for future payments, thereby mitigating the risk of borrower defaults.

For some, a LESA is a mandatory component based on their financial assessment results, but others may opt to incorporate it voluntarily into their reverse mortgage strategy.  This flexibility allows borrowers to align LESA with their specific financial needs and circumstances.

Incorporating a LESA into a reverse mortgage plan can be a game-changer, especially for new borrowers who might have reservations about reverse mortgages.  It addresses common concerns by ensuring that essential expenses are covered, thus offering peace of mind.

Strategizing: The Advantages of a LESA in Reverse Mortgages

The concept of a Life Expectancy Set Aside (LESA) in reverse mortgages might seem like it reduces your initial proceeds, but it’s a strategic move for long-term financial peace.

This approach is particularly advantageous for borrowers cautious about meeting ongoing loan obligations, such as taxes and insurance payments.

Family members of reverse mortgage borrowers often advocate for a Tax and Insurance LESA.  Their primary goal is to ensure their elderly parents can enjoy their retirement without the stress of these financial responsibilities.

Empowering Financial Independence: Betty’s Example with LESA

Consider the story of Betty, a homeowner born in 1932, who enjoys the comfort of her $750,000 home, which she owns outright, free from any mortgages.

Betty faces the common concern of managing ongoing property taxes and insurance, which amount to $218.71 monthly.  As she contemplates making some enhancements to her home, Betty decides to tap into her home’s equity through a reverse mortgage, aiming to withdraw $50,000 upfront for the renovations.

Betty values her independence but is not immune to the stress of keeping up with regular tax and insurance obligations.  Recognizing this, her son proposes a solution to alleviate her worries: incorporating a Life Expectancy Set Aside (LESA) into her reverse mortgage plan.

By allocating $18,847 to a LESA, Betty finds a way to safeguard her future.  This strategic decision not only grants her the financial flexibility to make the desired home modifications but also removes the fear of failing to make mandated tax and insurance payments.

Opting for a LESA allows Betty to maintain her financial independence and focus on the joy of improving her home, secure in the knowledge that her ongoing property charges are covered.

Set-Aside FAQs


What is a reverse mortgage LESA set aside?

The LESA is a Life Expectancy Set Aside.  These are funds set aside from your line of credit and not made available to you that the servicer uses to pay your taxes and insurance when due.  They are not borrowed funds until you use them to pay property charges, so you do not accrue interest on the funds until they are used, and if you never use the funds, they were never borrowed and did not have to be repaid.

How does a LESA benefit me?

If your reverse mortgage has a LESA account, you never have to worry about budgeting for or paying taxes or insurance on your home again.  The servicer will make the payments on your behalf, so you do not have to worry about having money available for tax or insurance bills.

How does the LESA growth rate work?

LESA funds are in the line of credit, so the funds experience the same growth rate as other line of credit funds on the unused portion.  This allows the lender to withhold less than 100% of the funds you are expected to need at the onset as the funds will grow over time, and that will help meet future tax and insurance needs.

Can I opt-in voluntarily for a LESA set aside?

Borrowers can voluntarily elect to set aside an account to pay taxes and insurance even though most result from HUD requirements due to credit or income issues.  It works well for many borrowers, but you must remember that once a LESA has been elected, the borrower cannot later change their mind and drop the account (even if it was voluntarily established).

What is a reverse mortgage repair set aside?

A set aside for taxes and insurance is money set aside for approved repairs at 1.5% of the cost of those repairs until the repairs are completed.  Suppose the borrower has a line of credit loan.  In that case, they can then use any leftover set aside funds for whatever purpose they desire, but if you have a fixed rate loan and set aside funds are credited back against the loan balance, the borrower cannot take those funds as an additional draw.

If you have a reverse mortgage and fall behind on the taxes, can you get a modification putting the taxes and insurance on LESA?

A reverse mortgage regarding a Life Expectancy Set Aside (LESA) cannot be changed once it is closed.  If a LESA is established at the time of loan closing, it will remain in effect for the life of the loan, and a loan without a LESA established cannot have one established later.

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