Reverse Mortgage Changes Coming
With more senior citizens using reverse mortgages to help fund their retirements, the Department of Housing and Rural Development will soon be taking measures to ensure that people who genuinely need this financing have access to it. During this next year, HUD will require that mortgage lenders verify certain pieces of information from applicants to improve the screening process and protect banks and mortgagors from default. Seniors aged 65 and older would do well to know about these upcoming HECM changes if they plan to apply for a reverse mortgage this year.Financial Assessment RequirementsIn March 2015, HUD will require that lenders administer a financial assessment during the application process. People who fill out an application for a reverse mortgage will be expected to complete this assessment to determine if they are capable of meeting the terms of the loan. Some of the applicant details that will be scrutinized during this assessment include:
The ability to pay regular monthly bills and other financial obligations
The likelihood that the borrower or borrowers will default on the mortgage contract
The ability to meet other terms of the loan, such as being capable of living in the home consistently
The applicant’s primary source of income or whether or not the person is employed at all.
Along with completing a financial assessment during the application process, people also will be expected to provide certain documentation that will prove their financial circumstances. While in the past lenders did not focus excessively on credit or income, people this year must be able to show that they have some sort of steady income available to them. This income, along with positive equity in their home, must be verified before the application process can continue.
In fact, HUD anticipates requiring documentation that verifies:
The source and amount of primary income
The source and amount of secondary or residual income
The value of any assets
The applicant’s credit history
Charge-offs, open bankruptcies, or other negative credit report entries
Life expectancy set-asides
Extenuating circumstances that could affect the outcome of the loan
When people provide this documentation, they may fear that they will be turned down for the mortgage, particularly if they have had credit challenges in the past. While it will require that such paperwork be submitted with each application, HUD also reminds lenders to remember that many clients will in fact be applying for an HECM loan because of dire financial circumstances. Financial difficulties, past or present, may not exclude a person from being approved for a reverse mortgage.
Savings or Set-Aside Money Requirements
One of the primary terms of a reverse mortgage requires that borrowers keep their homes in good condition. They cannot allow the property to depreciate in value, but must keep their homes repaired and well maintained during the life of the loan. As such, HUD will require that people have enough money set aside to cover repair expenses. People who have this money set aside are less likely to default on their loans and more likely to abide by this important requirement.
HUD will soon implement important changes to the existing HECM program and nullify our existing calculator. People who plan to apply for reverse mortgage in 2015 should understand how these changes may affect their application and approval.