Naples Daily News: New Reverse Mortgage Rules Help Retirees

Reverse mortgages have garnered a considerable amount of press in the months following the implementation of the Financial Assessment, detailing how new rules aim to make the product safer for borrowers. 

A recent article from Florida’s Naples Daily News describes how these new changes under the Financial Assessment, as well as updates to the non-borrowing spouse policy, stand to help today’s retirees.

After detailing the reverse mortgage essentials and the need-to-know eligibility requirements, the article discusses the rules set forth by the Financial Assessment in April. 

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“As a safeguard against borrowers overextending themselves, new rules as of April 27, 2015, require lenders to review the borrower’s finances prior to approval to ensure that the borrower has enough stable income to pay those ongoing costs,” the article states. 

Additionally, the article states that lenders will assess borrowers’ “capacity to pay” via income, and their “willingness to pay” via the borrower’s history of recent payments. 

In the event that a loan applicant falls short when trying to meet these requirements, the Naples Daily News also touches on the potential need for a set aside to “pay for the property taxes and other running expenses over the life of the loan.”

A segment of the article then describes the prevalence of Home Equity Conversion Mortgages (HECMs) and the costs associated with getting a reverse mortgage before getting into residency requirements and the recent amendments to the non-borrowing spouse policy from the Department of Housing and Urban Development (HUD).

“For new reverse mortgages, non-borrowing spouses must be identified at the time of the application,” the article states. “Eligibility or non-eligibility is established upfront, and the rules for maintaining eligibility are outlined so there are no surprises.”

Naples is a popular destination for older adults, especially those nearing retirement age. The median age of residents living in the city is 56-years-old, according to data from Realtor.com. Additionally, the median household income is $84,159 and the average household net worth is $722,340.

Read the Naples Daily News article.  

Written by Jason Oliva

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  • The overemphasis on income testing is ridiculous. Our capacity test is not income testing; it is a test of sufficient modified cash flow. Is it our intention to scare off some of the most cash needy of the truly mass affluent?

    For example, over the years I had clients who had little income but had plenty of cash flow. Among their cash sources were annuities, installment sales, oil royalties where a significant amount of their income was covered by percentage depletion, double tax free municipal interest income, nontaxable dividends, growth stock sales, and other sources. The firms I worked for earned nice fees from providing not only income tax planning but also advising about maximizing cash flow to the client at the least cost (including annuity and pension penalties besides income taxes).

    By overemphasizing income testing,we naturally and unnecessarily scare off some very good potential borrowers. From time to time, they like those less fortunate need cash and a Standby HECM Strategy would be a reasonable answer to their occasional cash flow needs.

    As usual our industry loves to emphasize the wrong thing. Most seniors actually have as good an understanding of what cash flow is as they do income. They think we mean what we say; after all they reason HECM originators are the “experts.” Little do they know we have less of an idea of what the difference between income and cash flow is than they do.

    In the forward mortgage world there is a real concern about the income earning potential of their borrowers. Our emphasis on income should be much less; after all our borrowers are generally retirees. Once retirement sets in, the emphasis changes from income to cash flow. Our capacity test emphasizes modified cash flow not modified income.

    (The opinions expressed in this comment are not necessarily those of RMS or its affiliates.)

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