Recent revisions to the home equity conversion mortgage (HECM) are putting borrowers’ finances under the microscope, making the financial tool less attractive to some consumers, says Nasdaq in a recent article.
The new disclosure rule may also mean the neediest borrowers could be denied loans.
Nasdaq explains what the financial assessment entails, including that homeowners must verify their income and financial assets and go through an analysis of their expenses and cash flow.
“What if an applicant has missed payments of property tax or insurance or does not have enough net income?” Nasdaq says. “Such perceived-to-be risky applicants may still get a loan if a portion of it is put into a set-aside account for payment of future property taxes and insurance. But critics say that if this set-aside is too large, it may cut the appeal of reverse mortgages.”
In addition, the article notes the HECM change that took place in late 2013 that caps the amount that borrowers can access of their loan in the first year.
In the short-term, these key changes could trim demand for HECM loans, Prof. Stephanie Moulton, a reverse mortgage expert at Ohio State University, tells Nasdaq, adding that over time the changes may “lift demand” among a segment of seniors who see reverse mortgages as part of a longer-term financial strategy.
Read the article here.
Written by Cassandra Dowell