As the reverse mortgage becomes more and more popular FHA adds more and more new rules putting a damper on approvals for many borrowers who previously would have qualified. One new rule is the upcoming financial assessment. Several borrowers who right now qualify may find themselves getting declined for the reverse mortgage once FHA finally enacts its planned assessment which will show a borrowers “willingness to pay”. For the time being FHA has delayed the roll out but we don’t know for how long. In the past a delay has meant several months or even years but we feel this time will be different as FHA feels the financial assessment is a tool needed right away to insure the longevity of the reverse mortgage product.
In October of 2013 FHA did away with the two reverse mortgage products we had. The Standard and the Saver. The Standard got the borrower more money but also had more feel and the Saver got the borrower a little less cash out but had much lower fees. FHA rolled out one product that made loan amount about 15% lower across the board. These new loans also capped the amount a borrower can take out in the first year at 60% of the amount qualified for. If the borrower stays at or below that 60% threshold then their upfront MIP fee is only 0.5% of the value of the property but if they need to go above the 60% to pay off existing debt etc then they are subject to a higher MIP fee of 2.5% of the value. Obviously that was devastating to many borrowers that would have previously qualified.
As if that was not enough to limit the pool of those seniors who can be helped by the reverse mortgage FHA has said they will put in place a financial assessment. Previously if you were at least 62 and had a good equity position in your owner occupied home, you qualified for a reverse mortgage regardless of other issues (lack of income, bad credit etc). The new financial assessment will qualify seniors based on income and credit and what FHA calls “willingness to pay”. That means they want to see if you have illustrated the willingness or ability to pay your bills on time. If the borrower shows that they have neglected to pay those bills, bills like property taxes, home owners insurance and others they may be subject to things like escrow set asides or completely disqualified from receiving a reverse mortgage.
FHA was set to roll out this assessment on January 14th 2014 but has since delayed. Right now we don’t know how long it may be delayed for. In the past a delay has meant a long time like months or even years depending on what was being released. This time though we feel the delay will not be as long. FHA really feels this assessment is important in order to make sure those who cannot keep up with their responsibilities (paying of property taxes and home owners insurance) are either not allowed to obtain a reverse mortgage or are forced to have an escrow set aside to make those payments for them. Keep checking here for more info as to when the new date of the assessment is released. If you have more questions please call us today. Those who do an application before the implementation of the financial assessment will not be subject to it. Call today for more info.