• 64 and older will be eligible for more funds.
• between the ages of 62 and 63 will be eligible for slightly lower funds. The chart below reflects  the dollar change in Available Funds based on different home values and borrowers ages using a 5% interest rate (PLF Tables Effective 8/4/2014)

The next chart shows the percentage change from the old limits to the new limits, also assuming a 5% interest rate. At age 90 and beyond, there has been an increase of 9% over what was previously available. This is great news especially for someone who may have tried for a reverse mortgage previously and was short to close.

Why was the change made?

HUD recently updated it’s policy regarding non-borrowing spouses on a reverse mortgage loan. With the new change, non-borrowing spouses receive additional protections, allowing them to remain in the home, even if the borrowing spouse passes away, as long as certain conditions are met at the close of the loan and throughout the life of the loan.

What do all these changes mean to you?

If you are in the process of obtaining a reverse mortgage or have been considering a reverse mortgage and you are 64 years or older, it’s good news as you will qualify for more proceeds than previously allowed.To find out exact details on how the changes will impact you, please call MLS Reverse Mortgage toll free at 1-888-888-4834 or apply online.

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But that may change, and some lenders have already implemented—and then revoked—guidelines determining applicants’ eligibility for this type of loan. Reverse mortgage financial assessment stems from ongoing discussion about ways to protect HECM borrowers from defaulting on their homeowners insurance or property taxes, which they’re required to keep up-to-date (as with any type of home mortgage) as a term of the loan.

What does that mean for you? Most lenders’ efforts toward a borrower financial assessment, if they’re any indication of what’s to come, have examined applicants’ credit history and monthly cash flow, among other factors, in an attempt to determine willingness and ability to keep up with recurring financial obligations.

What Might a Financial Assessments Look Like?

The Department of Housing and Urban Development (HUD), which administers the federally-insured Home Equity Conversion Mortgage (HECM) program, has long stated its intentions to dispense guidelines for lenders to use in considering a reverse mortgage applicant’s financial capacity and credit history, among other relevant indicators.

In the absence of an official rule, the National Reverse Mortgage Lenders Association released guidance in June 2011 encouraging lenders to conduct a monthly debt-to-income ratio test on applicants, along with assessing a prospective borrower’s willingness or ability to keep up with ongoing financial obligations, like tax and insurance. Determining this information could include checking credit history or documenting income.

Who is Conducting Financial Assessments?

MetLife was the first lender to implement a financial assessment for its reverse mortgage borrowers, based on NRMLA’s suggestions. Their assessment included three criteria that examined an applicant’s residual cash flow, credit history, and principal limit usage (PLU).

Prospective borrowers’ PLU is determined by looking at their outstanding mortgage balance, other debts, and repairs they must do to their home as a term of the HECM program. Simply, it is the percentage of the Initial Principal Limit used to satisfy mandatory payoffs when the loan is funded. For applicants to qualify for a HECM Standard, their PLU must be less than or equal to 75%. For borrowers who want to take out a HECM Saver, which offers smaller upfront origination fees in exchange for a smaller loan amount, their PLU must be less than or equal to 90%.

MetLife introduced these borrower qualifications in November 2011, but later suspended the qualifications after other reverse mortgage lenders failed to implement similar guidelines.

Several other lenders have stated plans to introduce some sort of financial assessment, and some may have their own eligibility requirements they’re already reviewing. But at this point, the HECM program doesn’t have an official financial assessment.

What Do You Need to Know as a Potential Reverse Mortgage Borrower?

Right now, you don’t have to worry about a financial assessment or the documentation it could require. However, you may want to be prepared in the event HUD does begin requiring lenders to conduct certain evaluations of prospective borrowers, or if lenders independently begin introducing their own versions of a financial assessment.

Based on what the industry has already seen in terms of NRMLA’s guidelines and MetLife’s suspended financial assessment, you might need to show proof that you’ve had homeowners insurance for the past 12 months. You may also be asked to provide documentation that you are current on your property taxes.

Some lenders may seek to assess your monthly cash flow, which will depend on factors such as the loan amount for which you qualify, and how much outstanding debt you have, including an existing mortgage balance.

Depending on what’s allowed in terms of assessments and financial requirements, some lenders may require you to set aside funds specifically for paying your tax and insurance. These are costs you’re required to pay anyway, and earmarking funds for these obligations could help make sure you won’t default on your loan for not keeping up with their taxes and insurance.

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Some companies would like you to believe that these specialized loans are so intricate and confusing that Seniors can’t decide what to do without having their hands held. What am I referring to?

In recent past, I heard a couple of radio hosts discussing reverse mortgages on a very popular radio station. While I believe that it is very important to note that these particular radio host are representing a respected company in our industry, listeners need to be aware that they are on the radio because they have crowned themselves experts and purchased this time to promote themselves and their company. But, what have they said for me to write this article? Well, here it is; they boast that they are specialist in the industry and that reverse mortgages are the only thing or product that they sell. Furthermore, they promote that they only write mortgages if they visit you in person and give you the details. They tell you not to deal with any other company if they do not follow their same philosophy. These guys would like you believe that you are not capable of comprehending this seemingly complex product without them.

I say “bologna”. I own a very respected mortgage company as well. We are not a very large company owned by a very large nation wide insurance company working under a different name and poising a small local company. We are a family owned company and we pride ourselves on being very professional and courteous. We earn the respect of our clients. We cannot afford to represent one product only, nor would we. We believe that having all product types available are for the best of all of our clients. In fact, what if the reverse mortgage wasn’t the best choice for our client, we could offer our client the best financial product for their needs. I wonder if the other companies having only one product to offer would refer their client to another Broker if the reverse really wasn’t the best product or would they find it necessary to tip the scale their way and convince that client that the product they sell was in fact best for them so as not to loss a commission. It is also important to note that HUD/FHA do promote “no cross selling”, however, they reference is in regards to cross selling other non mortgage related products such as insurance annuities.

Next, lets discuss face to face visits. Certainly a face to face visit with one our clients is fun and informative. We value our clients and being in a position to see them face to face is sometimes beneficial for them, however, I do not believe that a face to face visit is imperative for them to learn. Seniors are not ignorant nor should they be treated as if they were children. When reverse mortgages were still a new product on the market HUD/FHA made it mandatory that originators had to have face to face visits with prospective Borrowers. About 1 1/2 years ago, HUD determined that the market has become so increasingly knowledgeable about these types of loans that they removed that requirement from our laws. Do not feel compelled to have someone show up at your home or be inconvenienced by having to go to someone’s office because it just isn’t necessary. If you are dealing with a Broker such as myself, you can communicate with me anytime by picking up a phone. I or any of our professional staff are available within seconds. If you or our professionals determine that you need additional informational and believe that a in home or face to face visit would make you feel more comfortable, we’ll be there. The most important reason certain Brokers push for in home visits is truly not for your benefit. Most will actively try to put themselves in front of you because they believe that once you have met them face to face, it will be more difficult for you to tell them “no”.

Please keep in mind that only HUD approved Brokers and Lenders can sell you an FHA approved reverse mortgage. We must all abide by the same rules and qualifications, so, there no real differences there. When interviewing for a reverse mortgage originator, be sure to feel comfortable with the individuals knowledge of reverse mortgages, their ability to educate you whether it be in person or via the telephone and try to ascertain if they are truly looking out for your best interest. One additional thought and I am aware that the original company I referred to in this article as well as my company are members of the National Reverse Mortgage Lenders Association (NRMLA). NRMLA members do adhere to a standard of ethics which are necessary for providing Seniors fair and honest services.

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