The reverse mortgage industry has been at work toward the development of a financial assessment for borrowers to determine their willingness and ability to meet property charges. While the Department of Housing and Urban Development says it is still working on a proposal for what the assessment will include, AARP made a recent statement of support of a financial assessment for borrowers—as long as it doesn’t go too far.
A representative for the organization spoke in support of the financial assessment before a panel of House representatives during a May Congressional hearing. Looking too deeply into credit and other financial measures could be harmful to consumers, AARP said.
“AARP understands the need to examine a borrowers’ financial ability to pay property taxes, homeowners insurance, homeowners’ association dues and assessments, and to be able to maintain the property,” said Lori Trawinski, Senior Strategic Policy Advisor, Consumer and State Affairs Team, AARP Public Policy Institute. “However, we do not believe that credit scores, payment history, or the existence of a bankruptcy filing or foreclosure should be part of the financial assessment.”
A financial assessment implemented by MetLife in late 2011 asked for originators to collect credit history as well as history of bankruptcy and missed mortgage payments in an effort to determining a borrower’s willingness and ability to pay ongoing property charges. Many believed the assessment went too far, and originators took business elsewhere after finding many borrowers could not qualify under the new guidelines. MetLife later suspended the assessment.
AARP’s support of the financial assessment focuses on the borrower’s ability to get a reverse mortgage if it is needed, with an emphasis on monthly cash flow.
“The determination should be whether borrowers have the ability to meet their basic living expenses, financial obligations and property charges, and this should be determined after taking the cash flow from the potential reverse mortgage into consideration,” Trawinski said.
HUD has said it is working on the development of a financial assessment that will be mandatory for all reverse mortgage lenders, to be proposed in late 2012.
Written by Elizabeth Ecker