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WSJ: Forward Lenders Finding New Ways for Seniors to Qualify

For an industry that often tries to communicate the benefits of either a Home Equity Conversion Mortgage (HECM) or a proprietary reverse mortgage offering to American seniors, it may be surprising to learn that there is still a segment of older people – some of whom are quite advanced in age – that are entering into new traditional, 30-year mortgages. This is according to data from the Federal Housing Finance Agency (FHFA) and a new story appearing in the Wall Street Journal.

“Borrowers over 65 account for roughly 10% of all mortgages originated annually, according to reports by the Federal Housing Finance Agency,” writes WSJ reporter Katy McLaughlin. “Eager to serve this group, some lenders are working harder to find ways to qualify retirees, including rolling out lending programs that let borrowers use their investment portfolios to qualify, without even taking monthly distributions.”

Additionally, traditional mortgage loan officers in areas with lots of retirees have become “experienced in adding up income streams,” the story reads, while also helping borrowers establish new ones.

In one highlighted instance, a Florida-area loan originator recently wrote a new 30-year loan for a retiree purchasing a new home in New Port Richey, Fla. The borrower had no issues qualifying, but loan officer Mary Babinski of Motto Mortgage Champions in Trinity, Fla. was still surprised that he could due to his age: 97.

“Federal law, under the Equal Credit Opportunity Act, forbids discrimination in the mortgage market on the basis of age,” McLaughlin writes. “Nonetheless, loan officers say older borrowers often don’t realize they can get loans with terms that will expire on their 110th, 120th or nearly 130th birthdays.”

Retiree customers of some lending organizations can find themselves qualifying for new forward loans by adding up their various sources of fixed income, which lenders treat like salary. One lending executive describes older borrowers qualifying by adding together their pensions, Social Security payments, dividends and interest on investments, the story reads.

In cases where there is still a shortfall in qualifying after adding all those sources together, the next thing to do can involve setting up a distribution from a retirement account like a 401K or an IRA.

“If qualifying is still a problem, lenders are increasingly willing to consider stocks, bonds and mutual funds,” the story reads. “This differs from creating a distribution that will be counted as income because the borrower doesn’t have to take a monthly amount out of their portfolio.”

Read the story at the Wall Street Journal, subscription required.