After months of speculation as to how the Federal Housing Administration will implement a “financial assessment” for reverse mortgage borrowers, the agency told RMD the changes are being written and could hit the street within 45 to 60 days.
Reverse mortgage lenders have expressed uncertainty and concern over the potential for new rules, which have been rumored to include a new light credit underwrite for HECM borrowers. But a credit underwrite isn’t exactly what the rule will focus on, says FHA.
“We are focusing our efforts on the ability [of borrowers] to repay recurring costs,” said Vicki Bott, deputy assistant secretary for single-family housing with the Federal Housing Administration, who says the new rule is a “financial assessment” rather than a credit requirement.
“We don’t want to make [the rule] overburdening, but robust enough that lenders can evaluate seniors. It’s striking a balance between those two: efficient but effective,” she said.
Bott says the rule is well on its way to being written, and the FHA hopes to have it released in the near future, upon which a comment period will follow.
“The goal will be to ensure that any senior with a reverse mortgage does have the ability to pay the property charges so they will not be put in a position to default,” she said. “The focus will be on debt and income.”
The assessment is part of a larger effort by the Department of Housing and Urban Development to address the growing number of defaults from borrowers’ failure to pay taxes and insurance. A report published last year by the Office of Inspector General found nearly 13,000 such loans.
The guidance is designed to establish a clear framework that protects both the homeowner and the lender who participate in HUD’s reverse mortgage program, according to the department.
Lenders, however, have expressed concern as to what form the financial assessment will take.
An executive at from one top-20 lender told RMD he estimates that a credit requirement could mean 20%-40% of reverse mortgage borrowers would have trouble qualifying.
“Some might not qualify, but I can’t imagine it’s a large number,” said Bott. “Hopefully it proves the vast majority can.”
Written by Elizabeth Ecker