HUD: Financial Assessment Is Fair Game, Official Statement Coming Soon

A statement confirming that reverse mortgage lenders can conduct a financial assessment to help ensure borrowers can meet their tax and insurance payments on the loans is coming soon, a Department of Housing and Urban Development official told RMD on Thursday.

While there has long been talk of such a financial assessment, and with a recent push by the National Reverse Mortgage Lenders Association to develop that assessment, many lenders have been hesitant to underwrite for taxes and insurance without official guidance from HUD, or at least something in writing to indicate that such an underwrite is permitted.

“We have decided that we are going to provide a written clarification and expect to do so in the next couple of weeks,” Karin Hill, director of the Office of Single Family Program Development at HUD told RMD this week.

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Additionally, Hill said, “There’s nothing in the regulations that would prohibit the lender [from such an underwrite]. The lenders are responsbile for making credit decisions on the loans.”

On a recent occasion, Hill told attendees of a mortgage regulatory conference that underwriting for tax and insurance was fair game for HECM lenders. An official statement, however, would be the first of its kind.

NRMLA recently announced that appointment of a special task force to collect and analyze data in an effort toward developing a financial assessment. Given the longevity of the program, it is the first time that such a thorough data collection has taken place.

“We’re beginning to see some very positive results,” Hill said. “Hopefully, we’ll be able to start releasing and tracking the data soon.”

Written by Elizabeth Ecker

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  • Here is my opinion for what it is worth. I see more confusion and a complex end results in the making. I can’t understand why our seniors could not be set up with an escrow account just like a forward loan. Issue a coupon book to the senior after the loan closes and have them make monthly payments for the T&I? This way you are not dealing with set up fees, other than an amount to set up the escrow account. The amount needed up front would depend on the closing date, just like a forward loan! We would not have to deal with a lender conducting a financial assessment for one. Also, what is saying that the financial assessment done today will be the same for tomorrow. What is HUD going to do, require a financial assessment be done each year? Make it simple! Our seniors can manage their financial affairs on a monthly basis much better than having to face their T&I coming at them in one lump sum at the end of the year.As an example, if the seniors taxes were $1600.00 per year and their insurance was $850 per year this comes to $2,450.00 per year. Believe me, a senior can handle $204.00 per month a lot easier than facing a $2,450.00 shot at one time! Another point, if the senior sends in monthly payments for their T&I, the control the lender would have over T&I defaults would be incomparable to any thing we have had or will have under the procedure being talked about now. Granted, you have extra servicing costs, look at the extra cost in servicing the loan as an insurance policy against a large dollar amount default! That is my opinion and it has been this all along. Thanks, John A. Smaldone

    • John,

      I have a real problem with your proposal.  There is no teeth to it.  I seems to be little more than an early warning system and turns servicing into a nagging system. 

      We all understand the mechanics you are suggesting and that most lenders believe in monthly payments but I am not aware where anyone pays $2,450  in one day.  Many in California pay their insurance monthly and their real estate tax payments are due in two payments, not one.

      It is how such payments will result in meaningful mitigation which we are concerned with.  Please remember 95% of HECMs are in compliance.  Why should 95% have to conform — that is even IF the five percent will comply?

      ReverseGuy has some very interesting remarks below. 

  • John – to your point on monthly escrow payments…HUD guidelines currently do not allow escrows – only tax and insurance set asides.  That may sound minor, but it would require HUD to change their regulations in order for this to be allowed.  That can certainly be accomplished (with time of course), but how does a monthly payment solve the problem for the borrower who can’t afford to pay their taxes and insurance to begin with?  The way the process currently works today, a borrower could not be denied a reverse mortgage even if they can’t meet those ongoing/regular obligations outright like tax or insurance payments.

  • I have voiced the following in the past and continue to maintain this concern…..Ms Hill states that the lender has the ability to underwrite the loan. NRMLA has published its ideas on best practice on the subject of financial assessment and Ms Hill has acknowledged her support of the concept. By leaving this up to the specific lender, alone, and not coming up with a regulation on the subject requiring adherence to this reg by all lenders, across the board, invites the rise of a “HECM sub-prime lender group”not unlike the forward FHA “hard to do”lender group that contributed heavily to the stress on the FHA coffers that we are witnessing today. I can’t believe that there is anyone out there that could disagree with this thought…….but I’d like to hear. 

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