For the past few months, we’ve been hearing a rumbling in the distance about the possibility of “credit underwriting” for Reverse Mortgages. With dark clouds approaching and faint cracks of thunder, the Reverse Mortgage industry braced for a downpour that could prevent some borrowers from qualifying for the very products which have rescued seniors, in the past, from financial disaster including saving them from foreclosure. The word now from the Federal Housing Administration is that they are working on something called “financial assessment” rather than “credit underwriting” according to an article in Reverse Mortgage Daily.
“We are focusing our efforts on the ability [of borrowers] to repay recurring costs,” said Vicki Bott, deputy assistant secretary for single-family housing with the Federal Housing Administration. Apparently, lenders will be charged with determining that the borrowers have sufficient income to pay their property taxes and homeowner’s insurance along with normal living expenses.
The rules are being written, and according to Ms. Bott: “The goal will be to ensure that any senior does have the ability to pay the property charges so they will not be in a position to default.” Thus, it seems the focus will be on debt vs. income – which has not been included in the approval process heretofore. A report by the Office of Inspector General last year found a growing number of loans in default for non-payment of taxes and/or insurance; which remains the responsibility of the homeowner after the closing of the Reverse Mortgage.
Lenders remain concerned about what form this new rule will take; at least until they’ve had a chance to review it. Let us hope that it will be to the benefit of all parties.
The Reverse Mortgage Gazette 