The financial assessment being developed by the Department of Housing and Urban Development to aid in determining HECM borrowers’ ability to meet the obligations associated with the loans continues to move forward said the agency earlier this week.
Such a “financial assessment” could have potentially addressed some of the issues raised by Wells Fargo in the bank’s decision to exit the reverse mortgage business, a decision the bank announced last week.
HUD’s development of the assessment, which it has said will focus on the ability of borrowers to repay recurring costs, was initially expected to be completed earlier this year.
The assessment, which HUD has said will not focus as much on credit as it will on debt and income, will still include a comment period to follow, during which industry members can offer feedback on the rule HUD develops.
“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 into a position to default,” Vicki Bott, then-deputy assistant secretary for single-family housing with the Federal Housing Administration, told RMD in March.
Industry members have expressed some support of such an assessment, but also some uncertainty about the components it will consider, and the potential to rule out some borrowers.
In announcing its decision to exit the business, Wells Fargo noted “restrictions associated with reverse mortgages that make it difficult to determine seniors’ abilities to meet the obligations of homeowners in their reverse mortgage, e.g., payment of property taxes and homeowners’ insurance.”
Reports following the exit announcement further point to the issues of tax and insurance defaults, with Franklin Codel of Wells Fargo telling the New York Times that Wells Fargo worked closely with HUD to find an alternative solution but was unable to find one.
In an email that leaked from a Wells Fargo executive on Friday, the tax and insurance issue was given more attention as the “last straw” in the bank’s decision.
The delay in HUD’s writing of the financial assessment also has to do with data collection from the industry. That data would help in HUD’s drafting of the rule, but the data collection process ran into issues that were not anticipated by the agency.
“As the data was received, we found that numerous integrity issues had to be resolved,” a HUD spokesman wrote in an email to RMD. “In some cases several data submissions were required. We are still working out issues with some of the data, but have begun the review and initial evaluation process.”
The rule is still on its way, however, HUD continued.
“Because of these issues, the guidelines have also been delayed. We need the data to complete analysis of proposed financial assessment guidance.”
Written by Elizabeth Ecker