Tag Archives: Financial Assessment

2015 NRMLA Regional Conference, Day One

7 Apr

Tradition Title Agency representatives Karen Keating and Alison Keating met many of our partners at this year’s National Reverse Mortgage Lenders Association Regional Conference in New York.  Here is a recap of the conference topics, a day at a time.

Day One featured an in-depth session on the Financial Assessment that goes into effect for FHA case numbers assigned on or after April 27, 2015.  In 2012, the FHA promised Congress to restore the insurance fund in two ways:  through Financial Assessment (FA) and Tax and Insurance Set-Asides.

Fundamentally, the FA will assess credit history, assess property charge payment history, and calculate residual income.  This will apply to every HECM, every borrower, without exception.  A full assessment will not be required for a non-borrowing spouse unless their residual income is used as a compensating factor.

There was discussion of the use of FA as a sales tool, providing valuable information to borrowers in the decision-making process.  FA can be used to go further than loan qualification and truly understand the applicant’s situation.  In the same way, analysis of a credit report can be used to track spending habits and credit card debt to see where a particular situation is heading.

The panel gave attendees some useful tips, including the use of a checklist and FA worksheet.

The LESA, or Life Expectancy Set-Aside was discussed extensively.  Based upon income and debt, and the predicted cost of living, borrowers must demonstrate that their residual income is sufficient.  If payment history and income fall within acceptable parameters, a LESA may not be required.

If an applicant does not meet standards even with the consideration of extenuating circumstances, a fully-funded LESA is required.  If credit and payment history is satisfactory but income is insufficient, a partially-funded LESA can be prescribed, where the mortgagor sets aside funds to be provided to the borrower periodically for the payment of property charges.

LESA charges include real estate taxes, homeowners insurance and flood insurance.

It was strongly recommended to read the FA handbook – more than once if possible – to fully understand FA.  You can download the pdf file here:

http://portal.hud.gov/hudportal/documents/huddoc?id=14-22ml-atch2.pdf

 

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Keeping Up With The HECMs

3 Mar

This past weekend saw the most recent of many changes to the HECM Reverse Mortgage program, when HUD set a new date for the implementation of Financial Assessment.  Here is a summary:

* Financial Assessment – All reverse mortgages with FHA case numbers assigned on or after April 27, 2015, will be subject to Financial Assessment.  Lenders must now check credit history and funds available to determine a borrower’s willingness and ability to keep up with property charges (real estate taxes and homeowners insurance).

* New Principal Limit Factors – August 4th of last year saw a change in the figures used to calculate the amount of money a HECM borrower may receive.  Most borrowers will see an increase in funds available.

*Maximum First Year Draw – Borrowers are limited to 60% of available funds during the first year of their reverse mortgage, with the exception of “Mandatory Obligations” ie: funds which satisfy liens that must be paid at closing, including closing costs, upfront FHA mortgage insurance premiums, mortgages and home equity loans being paid off by the HECM.

* Reduced Up-Front Mortgage Insurance – Closing costs are significantly lower for those borrowers who access less than 60% of available funds at closing – higher for those whose Mandatory Obligations brings the initial draw over 60%.

*Protections for Non-Borrowing Spouses – the new Principal Limit Factors include non-borrowing spouses younger than the qualifying age of 62.   There are certain protections for these spouses should they survive the borrower.

 

For details on these changes, contact Tradition’s President, Karen Keating.  She holds the prestigious Certified Reverse Mortgage Professional designation and can answer any questions or direct you to the pertinent Mortgagee Letter.

*UPDATE* Huge Reverse Mortgage Industry Change March 2 – DELAYED

9 Feb

UPDATE:

February 12, 2015, the Department of Housing and Urban Development (HUD) announced its decision to delay implementation of the long-heralded Financial Assessment rule just weeks before its effective date.

Citing a delay in the delivery of “certain system enhancements” required to support policies published in Mortgagee Letters 2014-21 and 2014-22, HUD said in an email notice to lenders that the Federal Housing Administration (FHA) will publish a Mortgagee Letter in the coming weeks announcing a new effective date for the policies detailed in those letters.

The new effective date is expected to be within 30 to 60 days of the original March 2, 2015 effective date announced in those previous Mortgagee Letters.

Financial Assessment Is Coming
Financial Assessment requirements will be in effect for all loans having case numbers assigned on or after March 2, 2015. The purpose of the financial assessment is for Lenders to review a borrower’s financial status including income, expense and credit history, to ensure the borrower has the willingness and financial means to continue meeting ongoing obligations, such as but not limited to, property taxes, home owner’s insurance, credit card debt and household utilities. These changes are designed to help senior homeowners benefit from a reverse mortgage, while determining if borrowers meet HUD’s minimum financial criteria to ensure that all of the borrower’s financial obligations can be met, including the reverse mortgage obligations. For borrowers who do not meet HUD’s minimum financial criteria, borrower’s may still qualify by having a portion of the available proceeds set-aside to cover ongoing property taxes and home owner’s insurance obligations.

For more information and further details, please Click Here to refer to the Mortgagee Letter 2014-22

 

And in case you missed it:

Non-Borrowing Spouse

 

There have been several updates this year to Non-Borrowing Spouse (NBS) requirements on HECM loans. ML 2015 02 defines a new type of NBS termed “Ineligible Non-Borrowing Spouse”.  An ineligible NBS does not live in the property and their age will not be a factor used to determine the Principal Limit Factors. The ML also revises the NBS related application and closing disclosures.  These requirements must be in effect no later than March 9,2015. Click Here to read the full ML 2015-02.

ML 2015 -03 addresses past NBS loans where the NBS had no deferral rights (loans with case number prior to August 4th 2014). This creates a process for an NBS to remain in the home if they meet certain criteria when the borrower passes.  Click Here to read the full ML 2015-03.

Reverse Mortgages to Require Financial Assessment Starting March 2, 2015

14 Nov

The Department of Housing and Urban Development has issued a financial assessment for reverse mortgage borrowers that will take effect for all case numbers issued on or after March 2, 2015.  The financial assessment is detailed by HUD through Mortgagee Letter 2014-22 published Monday.

“The mortgagee must evaluate the mortgagor’s willingness and capacity to timely meet his or her financial obligations and to comply with the mortgage requirements,” HUD writes in defining the purpose of the financial assessment. “In conducting this financial assessment, mortgagees must take into consideration that some mortgagors seek a HECM due to financial difficulties, which may be reflected in the mortgagor’s credit report and/or property charge payment history. The mortgagee must also consider to what extent the proceeds of the HECM could provide a solution to any such financial difficulties.”

NRMLA issued a statement in support of the financial assessment following its release.

“At NRMLA, we are always concerned about protecting those aging Americans who cannot afford to meet the responsibilities of reverse mortgage loans,” said NRMLA President and CEO Peter Bell. “Financial Assessment will help determine if the product is right for the potential borrower. By implementing this process, HUD is responsibly making the HECM a safer product.”