BY: John Harding
Sooner is Better Than Later to Start the Process…
Many Seniors who have been considering the idea of utilizing a Reverse Mortgage (HECM) to tap into their home equity but procrastinating on actually starting the loan approval process may have waited too long. Due to changes in the FHA underwriting guidelines that determine whether or not a borrower qualifies for a Reverse Mortgage, many Seniors will no longer fit the new, soon-to-be mandated criteria.
Up until a few months ago, qualifying for a Reverse Mortgage was easy. If you were over 62, you had a fair amount of equity in your home, it was your primary residence and it was in decent shape, you qualified! Once you had a Reverse Mortgage, you’d never have to make another mortgage payment. In fact, it would be possible for your house to start paying you tax-fee income as long as you lived there.
With a few exceptions, it didn’t matter what your credit looked like, how much debt you had, what your income was or what other kinds of assets you owned. The only stipulation was that you had to continue to live in the home; you had to pay your property taxes and homeowners insurance premiums; and you had to maintain the home in decent condition. However, all that may be changing. Either due to a lack of education on the lender’s part of just a lack of finances on the borrower’s part, many Reverse Mortgage borrowers have become delinquent in paying their property taxes and insurance premiums.
Due to the tax delinquencies of multiple thousands of Reverse Mortgage borrowers FHA is now considering mandating a new “Financial Assessment” as a part of the loan approval process to make sure that Reverse borrowers have the ability to continue to pay their taxes and insurance premiums for the life of the loan. This new assessment will most likely take into account the borrowers credit, debts, income and additional assets.
In 2011, Bank of America, Wells Fargo and others decided to get out of the Reverse Mortgage business, primarily due to their reluctance to foreclose on tax-delinquent Senior borrowers. So far, only Metlife has “voluntarily” instituted a financial assessment in their underwriting process but most Reverse Mortgage lenders are waiting for FHA to define exactly what it is and mandate it. Industry analyst Reverse Market Insight estimates that the changes implemented by MetLife could rule out as many as 10% to 30% of borrowers that normally would have qualified under the old guidelines.
Seniors who have considered utilizing a Reverse Mortgage to eliminate debt, increase their income and improve their quality of life would be well advised to investigate whether or not it’s an appropriate solution for them soon. The new financial assessment and property values that continue to decline may now affect their ability to qualify for this valuable financial tool.
John Harding is a Reverse Mortgage Specialist with Stay In-Home, a division of Axia Financial, LLC