People have been asking what’s new in reverse mortgage. It seems like an ever changing machine now especially in recent years. Rule and rate changes and more rule and rate changes. The vice grip and frequency in regards to the rules on reverse have been swift and powerful. In recent years we saw the introduction of the financial assessment and all that it has done. On the positive side the HECM product as a whole is looked at as a safer product for investors and a more mainstream product by service professionals like Financial Planners and Accountants. The negative of the financial assessment is simple, many people who previously would have qualified for the reverse mortgage now do not. These borrowers may have issues on their credit, with their income or just have a history of missing property tax or home owner’s insurance payments. Now lenders will tell you that it is hard to get outright denied and that is correct technically. What happens is the borrower is found to have some issue the underwriter deems a problem then the lender asks for a partial of full LESA. LESA stands for lender enforced set aside. They can take years and years worth of property tax and insurance payments and hold them back from the benefit amount. What that means for several borrowers of there is no longer enough out of the loan to cover a loan they need to pay off in order to obtain the reverse mortgage. So while the lender is not technically denying the loan they have made it impossible to obtain in those situations.
Let’s talk about how this affects the average borrower. Most people will still qualify for the reverse as long as they paid their bills and made responsible decisions. Things like residual income amounts etc sound daunting but the calculation are much easier on the borrower than a traditional mortgage. The fact of the matter is that more people will qualify than not. All of these rule changes are designed to show people that the reverse mortgage is no longer a product of last resort and now many “needs based” borrowers can’t qualify for the loan. The reverse mortgage industry wants to show the world that the HECM is more of a “wants based” product and can be used in the mainstream world of retirement planning and investments. This is true, many now use the reverse just to have a rainy day line of credit for them if they need it because you only owe on what you spend.
Lastly let’s talk about rates and the bonanza we have seen lately. They have been all over the place. On the arm reverse which is the more popular of the two for many reasons we have seen the rates go up a full percentage since right before to right after the election and since then another eighth of a percent. What this means for the borrower is we need to sell lower and lower margins to keep the expected rate below the rate floor and get you the most money possible. That sounds good because the margin is a rate component that never changes but lower margin also means everyone makes less selling the loan and for the borrower that translates to less ability to discount and higher fees over all. For some that can be substantial. Bottom line is this, rates are rising and rules are getting more constrictive. Call me today to see what we can do to keep those costs low and review your situation to make sure the qualification and approval process is smooth and pleasant.