The Department of Housing and Urban Development has issued a financial assessment for reverse mortgage borrowers that will take effect for all case numbers issued on or after March 2, 2015.
The financial assessment is detailed by HUD through Mortgagee Letter 2014-22 published Monday. For borrowers who do not demonstrate their willingness to meet their loan obligations, life expectancy set-asides—full or partial—will be required.
“The mortgagee must evaluate the mortgagor’s willingness and capacity to timely meet his or her financial obligations and to comply with the mortgage requirements,” HUD writes in defining the purpose of the financial assessment. “In conducting this financial assessment, mortgagees must take into consideration that some mortgagors seek a HECM due to financial difficulties, which may be reflected in the mortgagor’s credit report and/or property charge payment history. The mortgagee must also consider to what extent the proceeds of the HECM could provide a solution to any such financial difficulties.”
The mortgagee letter also specifies documents that must be collected and submitted for all borrowers. The documentation has been updated to include “Financial Assessment Documentation” that includes, but is not limited to, credit history documentation, income verification, asset verification, property charge verification, residual income analysis, documentation of extenuating circumstances or compensating factors, and calculations for life expectancy set-asides and residual income shortfall set-asides.
According to HUD, the lender must evaluate the borrower’s “willingness and capacity to timely meet his or her financial obligations and to comply with the mortgage requirements.
“Where the mortgagor has not demonstrated the willingness to meet his or her financial obligations as stated above and no extenuating circumstances can be documented, the mortgagee must require a fully funded Life Expectancy Set-Aside.”
The assessment refers to previous mortgagee letters that drafted the financial assessment but takes the place of those mortgagee letters with some changes.
NRMLA issued a statement in support of the financial assessment following its release.
“At NRMLA, we are always concerned about protecting those aging Americans who cannot afford to meet the responsibilities of reverse mortgage loans,” said NRMLA President and CEO Peter Bell. “Financial Assessment will help determine if the product is right for the potential borrower. By implementing this process, HUD is responsibly making the HECM a safer product.”
Written by Elizabeth Ecker