HUD Details Financial Assessment With Reverse Mortgage Industry Participants

The Department of Housing and Urban Development today expanded on and clarified items relating to the reverse mortgage financial assessment the agency released last week that will take effect March 2, 2015.

The long-awaited guidance, which lenders say presents a new “ball game” for originations, will require lenders to complete a borrower assessment and determine based on the outcome, whether the borrower will need a life expectancy set aside (LESA), and whether it will be a fully-funded, or partially-funded set-aside.

HUD officials detailed items from the guidance published on HUD’s website to include financial assessment components.

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While the assessment itself will become mandatory, there are still extenuating factors that lenders will consider in determining the borrower’s creditworthiness.

The new guide will be the standard for Home Equity Conversion Mortgage originators, HUD said during a conference call with industry participants on Thursday.

“The guide is the standard by which HECM originators must originate,” said one HUD representative. “If we want to change financial assessment requirements, we’ll have to change the guide.”

But ultimately, there are many factors to be considered in the assessment, often spanning beyond the borrower himself or herself to include non-borrowing spouses and/or non-borrowing household members.

For the borrower credit history review, HUD noted that it is not simply a credit score, but that credit history will help determine residual income and monthly debts—both for the borrower and for any non-borrowing spouse and non-borrowing household member.

Those other household members’ incomes can be considered under the financial assessment and can help toward residual income in instances where the borrower’s income alone does not meet the financial assessment requirements.

For debt considerations, HUD specified that for revolving debt, the mortgagor must not have had derogatory credit in the last 24 months before getting the loan, or must have demonstrated three months of timely payments toward a specified payment plan—not to be prepaid.

But the lender will need to consider the borrower’s situation, not necessarily a simple “yes” or “no” answer in many cases.

“[The borrower] can resolve debt by paying off the delinquency or entering into a repayment agreement,” HUD officials explained. But, “just paying off a debt doesn’t mean it didn’t happen. That’s what we want you to think about as you’re doing your analysis.”

HUD provided examples for benefits programs that can be treated like income, such as supplemental nutrition programs. While they are not “income” they still serve as a way to improve the borrower’s overall residual income since the borrower doesn’t have to spend as much on food.

Extenuating circumstances are also considered under the financial assessment. Those are deemed as “situations beyond the control of the mortgagor for which he or she had some financial impact,” HUD explained.

Those circumstances may include things like a lost job, a spouse who has passed away.

“Understanding what happened is just one part of determining whether extenuating circumstances exist,” an official said. “[Lenders] also need to determine whether it’s likely to happen again.” A stopped job due to illness, for example, should not be considered the same as a job that a borrower quit of his or her own volition.

“We want to be able to see the connection between the incident and the impact on the mortgagors’ finances,” HUD officials said. “And finally, we want to know if they have other resources that will help them withstand future circumstances.”

Industry participants expressed some concerns through a question and answer session with HUD officials, clarifying seasoning requirements that were detailed earlier this week and seeking information on counselor training on the updates, which has yet to take place.

Written by Elizabeth Ecker

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  • I attended the phone conference, it was detailed as far as following the guide as best as HUD could on the phone. I feel it was a good thing for HUD to have the call.

    However, to be frank and honest in my opinion, the call lacked a lot. What I mean is that many questions could not be answered to the satisfaction of those asking the questions.

    Also, the call did not have the personal touch it needed, it was pretty much read from the guide at a fast pace. It was hard to keep up with at times.

    The seasoning requirement issue was not addressed the way it needed to be. This is a major concern and needs either a lot of clarification or changed drastically! In my opinion it needs to be changed. The way it is now makes no sense and is not going to be easy to be dealt with by the borrower, lender and especially the underwriter.

    John A. Smaldone

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