The Financial Assessment Released - HECMWorld.com Skip to content
Advertisement

The Financial Assessment Released

Advertisement

[vimeo id=”111876180″ width=”625″ height=”352″]

FHA Releases New Guidelines for HECM Financial Assessment

reverse mortgage newsThe long anticipated, or dreaded depending on your viewpoint, Financial Assessment was announced last week by HUD at the annual National Reverse Mortgage Lenders Association conference in Florida. The new guidelines will go into effect March 2nd, 2015. In fact we will be hosting a free national webinar training session today at 11am Pacific or 2pm Eastern. Just click the banner below to register and join us today. The FA or Financial Assessment will measure both the borrower’s willingness and capacity (or ability) to meet their financial and HECM obligations. The agency’s introductory comments reveal the motive behind this new protocol. “In conducting this financial assessment, mortgagees must take into consideration that some mortgagors seek a HECM due to financial difficulties, which may be reflected in the mortgagor’s credit report and/or property charge history. The mortgagee must also consider to what extent the proceeds of the HECM could provide a solution to any such financial difficulties.” In other words HUD & FHA are seeking to move the product away from those would use a HECM as a stop gap measure to long lasting financial issues which may resurface in the future…

Download a transcript of this episode here.

Download the HECM Financial Assessment and Property Charge Guide.

Looking for more reverse mortgage news, commentary and technology? Visit ReverseFocus.com today.

Share:

Leave a Comment

17 Comments

  1. How did our industry and the plethora of regulatory bureaucracies become so fixated on the “younger, non-borrowing spouse issue” and then create such inflexible rules that force all potential borrowers to comply with them?
    Not all “younger, non-borrowing spouses” plan to remain in the home upon the death of the primary borrower. Many recognize that they could not take care of the larger home and property and are fully prepared to vacate the home and relocate to smaller quarters or in many cases, move in with a son or daughter. We are treating EVERY “younger, non-borrowing spouse exactly the same and forcing the same assumptions on everyone. I think this is odd and just another example of industry and regulatory flawed reasoning that takes on the air of legitimacy, much like the reasoning behind Financial Assessment.

    • hecmvet,

      What option would you allow in the case of a non-borrowing spouse? What if a non-borrowing spouse changes her/his mind later?

      Rarely does just one rule meet all situations but more than one rule and you have confusion. If an election was available and the non-borrowing spouse did not like the result when the borrowing spouse passes what would we hear? “I did not know what I was electing. My deceased spouse liked the deal we got but I had no idea what the election would do to ME if he predeceased ME. The originator wanted the sale so he pushed into signing this form and the counselor, well, it was like he was more asleep than helping me understand the documents I had to sign. So there was literally no one who told me about the consequences of doing what my husband was insisting I do.” Or words similar to that. We hear that NOW.

      So maybe it would be a good idea to explain how THE hecmvet non-borrowing spouse rule would work and avoid all the problems we see now.

      • Cynic, there were ample “disclosures” that were required to be acknowledged by the non-borrowing spouse that clearly and unequivocally delineated the consequences and ramifications of entering into this type of transaction. I find it odd that HUD seemed unable to produce any of these documents in their defense. I fail to understand how we can make the determination that the older spouse is a rational, thinking, competent borrower and their spouse is a blithering idiot incapable of understanding anything.
        How HUD and our industry ended up so powerless to make our point and influence the outcome of this issue is simply mind numbingly stupid.

        • hecmvet,

          The case is not about adequate disclosures to a contract. (Have you even read an unbiased summary of the appeals case?) There are NO arguments by either side about disclosures because disclosure is not germane since everyone stipulates that the mortgages in question do not protect non-borrowing spouses against displacement as found in 12 USC 1715z-20(j).

          The case is about HUD violating the law by insuring as a HECM any mortgage which does not protect a spouse (borrowing or not) against displacement from the home at termination for the causes described in the law at 12 USC 1715z-20(j).

          HUD argues that the law contemplates borrowing spouses only. If that is true, why doesn’t it mention all other multiple ownership situations? Why does it only deal with borrowing spouses when there is NO adjective (i.e., technically a gerundive) stating that the spouse in question is a “borrowing” spouse? The law limits displacement protection to a current spouse but does not specify that that spouse must be a borrowing spouse or even have been married to the borrowing spouse at the time of closing.

          Do you think that the courts should have found that HUD was right for insuring mortgages as HECMs if spouses can be displaced in circumstances violating the language found in 12 USC 1715z-20(j)? Is HUD somehow not violating the law by insuring a mortgage which does not provide displacement protection to a spouse at the time of termination if it gets a non-borrowing spouse to sign a disclosure that recognizes he/she has no displacement protection? While such disclosures are very helpful in determining if the mortgage was insurable under 12 USC 1715z-20(j), they afford no protection to HUD for violating the law found at 12 USC 1715z-20(j); however, all litigating parties agree that the mortgages in question did not protect the non-borrowing spouse at the time of termination from displacement as described in the law at 12 USC 1715z-20(j). In other words, displacement protection to the non-borrowing spouse is NEVER in question in the appeals decision. The only issue was whether HUD could insure such mortgages as HECMs. Now that it is clear that HUD violated the law, the mortgagors can sue the HUD and the lenders for damages for falsely claiming that the mortgages in question were in fact HECMs at any time as the lenders falsely claimed they would be, knowing that the non-borrowing spouses were not afforded the displacement protections under 12 USC 1715z-20(j).

          Members of Congress (and the President) who read that portion of the bill [now codified as 12 USC 1715z-20(j)] when they voted had every right to conclude that a spouse (borrowing or not) at the time of a terminating event would be afforded the displacement protection of 12 USC 1715z-20(j) and that no mortgage which did not provide such protections would be insured by HUD as a HECM.

          Following the passage of the Reverse Mortgage Stabilization Act of 2013 which added 12 USC 1715z-20(h)(3), the HUD Secretary as permitted under that provision issued Mortgagee Letter 2014-07 which allows HUD to insure mortgages where a non-borrowing spouse is not afforded the displacement protections of 12 USC 1715z-20(j); however, a small wrinkle remains in that the Mortgagee Letter was signed by someone other than the HUD Secretary.

          So no one disagrees that contract law does not form an underlying part of the case but once it was stipulated by all litigating parties that the mortgages in question excluded the relations non-borrowing spouses from the protections embodied under 12 USC 1715z-20(j), the only question which remained was whether HUD violated the law by insuring such mortgages. The appeals court found HUD did in fact violate the law by insuring those mortgages. So unless HUD actually is heard by the US Supreme Court on this matter or another appeals court holds differently, the law of the nation must be interpreted as any mortgage not qualifying under Mortgagee Letter 2014-07 which does not afford the displacement protections under 12 USC 1715z-20(j) to the all spouses of borrowers at the time of termination (no matter WHEN the marriage took place) is NOT a HECM. Disclosures are meaningless in this regard.

      • Cynic, you sound like you are unfamiliar with the law of contracts when you say, “what if the non-borrowing spouse changes their mind?”. Your line of reasoning, such as it is, suggests that no one can be held responsible or accountable in the contracts they enter into…or, maybe you were just talking about the hecm program that seems to defy all forms of common sense or rational behavior.

        • hecmvet,

          The case is not about adequate disclosures. Have you even read an unbiased summary of the appeals case? There are NO arguments by either side about adequate disclosure because disclosure is not germane since everyone stipulates that the mortgages in question do not protect non-borrowing spouses against displacement as found in 12 USC 1715z-20(j).

          The case is about HUD violating the law by insuring as a HECM any mortgage which does not protect a spouse (borrowing or not) against displacement from the home at termination for the causes described in the law at 12 USC 1715z-20(j).

          HUD argues that the law contemplates borrowing spouses only. If that is true, why doesn’t it mention all other multiple ownership situations? Why does it only deal with borrowing spouses when there is NO adjective (or gerundive) stating that the spouse in question is a “borrowing” spouse? The law limits displacement protection to a current spouse but does not specify that that spouse must be a borrowing spouse or even have been married to the borrowing spouse at the time of closing.

          Do you think that the courts should have found that HUD was right for insuring mortgages as HECMs if spouses can be displaced in circumstances violating the language found in 12 USC 1715z-20(j)? Is HUD somehow not violating the law by insuring a mortgage which does not provide displacement protection to a spouse at the time of termination if it gets a non-borrowing spouse to sign a disclosure that recognizes he/she has no displacement protection? While such disclosures are very helpful in determining if the mortgage was insurable under 12 USC 1715z-20(j), they afford no protection to HUD for violating the law found at 12 USC 1715z-20(j); however, all litigating parties agree that the mortgages in question did not protect the non-borrowing spouse at the time of termination from displacement as described in the law at 12 USC 1715z-20(j). In other words, displacement protection to the non-borrowing spouse is NEVER in question in the appeals decision. The only issue was whether HUD could insure such mortgages as HECMs. Now it is clear that HUD violated the law, the mortgagors can sue the HUD and the lenders for damages for falsely claiming that the mortgages in question were in fact HECMs at any time as the lenders falsely claimed they were, knowing that the non-borrowing spouses were not afforded the displacement protections under 12 USC 1715z-20(j).

          Members of Congress (and the President) who read that portion of the bill when they voted had every right to conclude that a spouse (borrowing or not) at the time of a terminating event would be afforded the displacement protection of 12 USC 1715z-20(j) and no mortgage which did not provide such protections would be insured by HUD as a HECM.

          Following the passage of the Reverse Mortgage Stabilization Act of 2013 which added 12 USC 1715z-20(h)(3), the HUD Secretary as permitted under that provision issued Mortgagee Letter 2014-07 which allows HUD to insure mortgages where a non-borrowing spouse is not afforded the displacement protections of 12 USC 1715z-20(j); however, a small wrinkle remains in that the Mortgagee Letter was signed by someone other than the HUD Secretary.

          So no one disagrees that contract law does not form an underlying part of the case but once it was stipulated by all litigating parties that the mortgages in question excluded the relations non-borrowing spouses from the protections embodied under 12 USC 1715z-20(j), the only question which remained was whether HUD violated the law by insuring such mortgages. The appeals court found HUD did in fact violate the law by insuring those mortgages. So unless HUD actually is heard by the US Supreme Court on this matter or another appeals court holds differently, the law of the nation must be interpreted as any mortgage not qualifying under Mortgagee Letter 2014-07 which does not afford the displacement protections under 12 USC 1715z-20(j) to the all spouses of borrowers at the time of termination (no matter WHEN the marriage took place) is NOT a HECM. Disclosures are meaningless in this regard.

  2. In my short experience in reverse mortgage origination I see a lot of ‘desperation’ among borrowers. Many of these candidates for reverse mortgages will not likely qualify under the new guidelines. Perhaps a good thing as it will result in less problems ‘down-the-road’ for borrowers. Nevertheless, I don’t see it as good news for origination volume in reverse mortgages.

    • Tom,

      Your observations are right on point.

      It bothers me to no end when some long-time members of the industry stand up and say that financial advisors will no longer see reverse mortgages as loans of last resort and, therefore, will see them in a new and more favorable light. While many financial advisors are just that dumb, most are not. How do I know this? For over a year the industry has been TRYING to make this case about Saver v.2 and v.3 and have been failing miserably as seen in falling endorsement numbers. If it were not for about 18,000 Standards which had not been endorsed in fiscal 2013, the endorsement count for fiscal 2014 would have been much worse.

  3. Shannon,

    We wenmt from 15,000 a month 7 years ago to around 3-4,000 a month today, and all I’ve seen is change and more change constantly. They keep saying it’s for the borrower benefit. When a $600K homeowner needs to give FHA $15,000 up front in order to close and payoff their mortgage to stay in their home, that’s not my idea of our Government helping out it’s senior citizens. Add to that a possible set aside, and these folks will be turned away. I went back through my last 240 loans and I’d have to say, 3/4 will not be able to get the REVERSE with F.A.T. as of March 2,, 2015. I feel we have 104 days left before we MUST retire, go on social security, sell our homes and move to FL. I’ve sold, start Soc sec Jan 8, 2015, and have moved to a condo in FL. I am licensed in FL and last week tried to get my first deal, but closing costs were $33K. I waived the $%6,000 LOF on a $600K home, dropped it to $27K< and then gave a $20K Lenders Credit as we are a bank. This still left owner with a $7K closing costs, and before F.A.T. even starts, he is $31K short to close. Right now, if he can find $31K< he can close. After March 2nd, he is no longer a candidate.

    I think it's time to change careers

    Mike Johnson- 7 year REVERSE only Veteran.

    • Mike,

      15,000 endorsements a month, really? That would have been 180,000 endorsements in a fiscal year. We have never reached an average of 10,000 endorsements per month for a single fiscal year. Exaggerations help no one.

      This is not a government program for borrowers. It is insurance for lenders so that lenders can offer a risky mortgage (i.e., risky to the lender) to seniors .

      Lenders do not have to charge upfront MIP. HUD does not charge that fee to the borrower. Several years ago almost all lenders did NOT charge upfront MIP to borrowers electing a fixed rate Standard because their per HECM revenues were so high. BUT lenders should be free to pass along their costs to the consumer if the terms of the loan are reasonable.

      I do not believe things are as bleak as you paint them but switching careers may be best.

  4. I have to agree with Mike Johnson. The premise of what the Reverse Mortgage was intended has gone by the wayside. Whether it’s due to continued lower home values, additional changes to the product itself, lower LTV’s, etc., etc., etc., HECM’s are being amended off the shelf as a viable mortgage product. 77 million plus Baby Boomers MUST be extremely happy…….

  5. Shannon,

    I’ve been in the industry for over a decade and there is one component of all these new rules and regulations that I have not yet seen or heard discussed. Why is the minimum age to qualify still 62? Since we are now going to consider a whole host of qualify criteria and no longer rely on just age, value and interest rate why not lower the minimum age?

    A 55 year old client who is still working is likely going to have an easier time qualifying than a 75 year old client who is retired and living on a fixed income. Given that the lending guidelines are moving ever closer to conventional lending then why should 62 still be the entry point to the HECM program?

    • In my opinion, the reason for not lowering the qualifying age is 1) that was not the intent of Congress and 2) any lowering of the qualifying age would mean the HECM portion of the MMI Fund would be in far greater jeopardy than it is right now.

  6. Cynic, I would argue that all of the recent changes from FHA has already moved the HECM product far away from the original intent of Congress.

    Additionally, the only reason why 62 was originally used was it matched the eligibility age from Social Secuity at the time.

    Lastly, the MMI Fund is in jeopardy due to defaults which are not age specific. I beleive having younger, better qualifed borrowers would actually reduce the risk.

    • Driving in Reverse,

      Do you know the original intent of Congress? It is found in the law at 12 USC 1715z-20 and 20(a) and here is how we know that it is so; Congress wrote the intent of the HECM program into the law. The intent provision is more formally known as the purpose clause which states: “Insurance of home equity conversion mortgages for elderly homeowners

      (a) Purpose

      The purpose of this section is to authorize the Secretary to carry out a program of mortgage insurance designed—

      (1) to meet the special needs of elderly homeowners by reducing the effect of the economic hardship caused by the increasing costs of meeting health, housing, and subsistence needs at a time of reduced income, through the insurance of home equity conversion mortgages to permit the conversion of a portion of accumulated home equity into liquid assets; and

      (2) to encourage and increase the involvement of mortgagees and participants in the mortgage markets in the making and servicing of home equity conversion mortgages for elderly homeowners.”

      Too many in the industry have an almost class warfare mentality when it comes to HECMs. Congress did not!! Notice subsistence has no modifiers and thus has a broad reach even to the mass affluent/middle class although it would be hard to argue that it included the truly affluent.

      A minimum age of 62 could very well have to do with the minimum age of the retirement piece of Social Security in the mid 80s but that minimum age is the same today.

      Even if HUD paid all taxes and property insurance on HECM collateral, the projected losses on the HECMs accounted for by the MMI Fund would be materially the same. This silly notion about the massive impact of property charge defaults on the MMI Fund is a really bad joke. BUT the impact of those defaults on HUD personnel, costs to servicers/lenders, counseling time, etc. is enormous. The most significant problems with the property charge defaults that turn into foreclosures, short sales, etc. are the reputation risk to the lender and FHA and the perception damage to the image of the HECM products; that is why financial assessment had a much lower priority than reducing PLFs (which began in fiscal 2010), increasing ongoing and changing upfront MIP, and first year disbursement limitations.

      It is not property charge defaults that create the massive losses in the HECM portion of the MMI Fund but rather termination payoff defaults that create the overwhelming amount of those losses.

  7. As I retired bank lending executive who is new to reverse mortgages, my still unanswered question is why underwriters approved HECM loans that resulted in such large delinquencies. With the borrower only having to pay property taxes and insurance, the delinquencies should have been much lower than with forward mortgages. High delinquencies in my opinion is not a borrower or loan officer problem but underwriter problem. Someone within the industry should have looked at the underwriting and made adjustments so that the big delinquency problem would have been avoided. My experience has been to have the industry fix the problems because government will always come up with rules that are much more than is required. The current rules are a great example of government overkill.

    • Nephi,

      I cannot disagree with your conclusion that the financial assessment created by FHA has far too much overkill but most lenders feared going out on a limb to write their own financial assessment policy.

      Not long ago one lender did. It thought other lenders were on board with the idea and would soon follow their example. The lender instituted their own policy but no other lender followed. Soon the lender with financial assessment had a huge loss in new applications and their pipeline; their applicants were simply going to lenders with no financial assessment. No lender dared venture into that area after those results. Instead everyone waited for HUD to get their financial assessment in place and implemented.


Add a Comment

Your email address will not be published. Required fields are marked *

Advertisement
Advertisement
Grow your network of financial professionals with quality pre-set appointments

Recent Stories

Topics

Subscribe to join our World

Get the latest reverse mortgage news delivered straight to your inbox.