The day is finally here – financial assessment has launched!
As of today, the US Department of Housing and Urban Development (HUD) will require a financial assessment of all HECM reverse mortgage applicants. From now on, reverse mortgage lenders must perform a credit history analysis and a cash flow/residual income analysis before approving any type of HECM – adjustable, fixed, or purchase.
We see this as a great opportunity for our clients to learn more about their own finances and be further protected as a reverse mortgage borrower. It is our opinion that the government is working to further improve the reverse mortgage product and this newest requirement does just that.
What does this look like in the reverse mortgage process? For one, there will be a few more documents requested by your lender during the process. This is to help the lender determine whether you are able to meet the responsibilities asked of you as the borrower and homeowner. Such responsibilities include staying up to date on your taxes and insurance and keeping the home properly maintained. It is important to know that even if financial assessment determines you are not able to uphold those responsibilities, we may still be able to help you get a reverse mortgage.
If you do not meet the criteria set forth by HUD in the new financial assessment guidelines, then the lender is required to withhold a Life Expectancy Set-Aside (LESA) from the reverse mortgage proceeds for the payment of property charges during the life of the borrower. The LESA is like an escrow account. The need for a LESA, the funding amount of the LESA, and the structure of the LESA, are based on the results of the financial assessment of the borrower.
If you have any questions about financial assessment, give us a call. Our licensed experts are happy to answer any questions you may have.