Who is responsible for changing the rules effective April 27, on Reverse Mortgages so the applicant now has go through a credit check?
The credit checks for reverse mortgages are authorized by congress.
The Department of Housing and Urban Development (HUD), whose Federal Housing Administration (FHA) finances the vast majority of reverse mortgages, noticed that borrowers increasingly have been opting to withdraw most or all of their home equity at closing, leaving little or nothing for future needs. Consequently, many reverse mortgage holders were in default and at risk of foreclosure because they couldn’t pay their taxes and insurance.
Therefore, Congress authorized HUD to tighten several FHA reverse mortgage requirements in order to: encourage homeowners to tap their equity more slowly which can help borrowers afford their loan’s fees and other financial obligations; and strengthen the mortgage insurance fund from which loans are drawn.
As a Fiduciary, I demand that our clients do not outlive their income:
Potential borrowers must undergo a detailed financial assessment to ensure they’ll be able to meet future tax and insurance obligations. Lenders are required to review the potential borrower’s credit history. They also must analyze all income from earnings, pensions, IRAs, 401(k) plans or Social Security, and weigh it against the borrower’s likely living expenses, including other outstanding debts. Those who come up short (i.e., are more likely to default) may be required to set aside money from their reverse mortgage to cover future obligations — thereby lowering the amount of equity they’d be able to tap into.
Feel free to contact me for further discussions.
It's not what you make, It's what you keep that determines your lifestyle.
| 03.27.16 @ 17:55
Congress originally enacted the reverse mortgage concept in 1993 when residential real estate values were increasing annually. Senior borrowers could withdraw approximately 90% of the value in a lump sum and could refinance with HUD borrowing more as their age increased and/or the property value increased. Since Congress made NO provision in cases of declining property values, the residential property value collapse in 2007-2008 was devastating for reverse mortgages and for HUD. When the last borrower left the property and HUD acquired the property, the value was much less than loan balance especially since a reverse mortgage balance included interest compounded and added to the outstanding loan balance.
HUD stated that many borrowers defaulted; but actually very few borrowers remaining in their homes defaulted. The actual cash shortage for HUD was caused because they did not liquidate the properties after the last borrower left the property (usually after dying) in a timely manner.
Why? Because they couldn't liquidate for anywhere near the loan balance.
Instead of recognizing the loss immediately and liquidating the property minimizing the loss, HUD chose to hold the properties paying the maintenance expenses, R.E. taxes, etc.
Then HUD asking Congress to fund the shortfall. To be clear, this is NOT just a few properties; this is hundreds, maybe thousands of properties.
Inquire as how many individual residential properties HUD acquired in this manner (NOT from foreclosure from the borrower's failure to pay the RE taxes) and prepare to be astounded.
Most borrowers followed the rules exactly; Obviously, Congress is partially to blame for not allowing for a property value decline when they set up the program, but most of the blame should be towards HUD and their refusal to recognize the program's losses and just liquidate the properties. If they had done that, there would be little or no cash shortfall and no need for additional funding.
Senior borrowers are being penalized by the program's alterations and advisors and fiduciaries didn't delve into the real causes of the shortfall and complain on behalf of seniors to Congress.. Instead, they just swallowed HUD's explanation..
Fortunately, I have no "skin in the game" , but I would be ashamed to be an advisor and not have looked at the real cause of the problem on behalf of the seniors I serve.
. | 03.31.16 @ 03:34