Reverse Mortgage applicants will undergo financial assessments after April 27, 2015.
For the first time since the start of reverse mortgages in 1989, reverse mortgage applicants will be asked to show willingness and means to meet their financial obligations. The application process will look like traditional mortgages. Borrowers will be asked to provide income documentation. A review of credit history and income and expense verification will also be part of the process.
Available reverse mortgage proceeds will be included when calculating the borrowers’ future income.
Proof of timely mortgage payments, property taxes and homeowners’ insurance payments will be looked at. There cannot be any significant derogatory credit reporting in the last year. Applicants who do not meet these requirements are not automatically denied. They may be subject to proceed hold backs equal to 75-100% of their property charge obligations for their estimated life times. Applicants with derogatory items on their credit reports will be considered on a case by case basis.
You can expect longer underwriting times and increased required documentation.
Why another change to reverse mortgages? (We’ve had over 13 in the past year!) HUD wants to assure that reverse mortgages will be available for the long term. These new underwriting guidelines will help to reduce the risk of borrower default. The financial assessment process is a big change for reverse mortgages. More and more homeowner’s are seeking reverse mortgages to incorporate into their retirement plans. The changes will help solidify the reverse market. This will create more opportunity for reverse mortgage product development and choices for consumers. It’s a challenge to the industry, but in my opinion a good thing for everyone.