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New FHA reverse mortgage financial assessment rule spells doom for HECM reverse mortgage program
Income, asset, and credit requirements will squeeze out the target market
Generally, HECM reverse mortgage eligibility was open to those 62 or older who had a healthy amount of equity to borrow against. As the financial crisis of 2008 depleted home values, many existing reverse mortgages went underwater, posing a long term liability to the government. An outgrowth of this is the reverse mortgage financial assessment rule. However, in protecting the government’s interest, it runs counter to the purpose of the program- helping seniors in trouble.
According to Martin Dekom, reverse mortgage financial assessment “is a self-inflicted stab in the heart of FHA’s mission to help weaker homeowners. It's bureaucracy gone wild.” Dekom is a reverse mortgage expert who runs Ureverse.com, a non-lender information site. Historically, FHA’s HECM program had no asset or income requirements, because their lack was exactly why people were getting a reverse mortgage. The program put money in the hands of seniors who needed it. The new rule will calculate whether income sources can cover projected expenses, such as credit card and other debt, property taxes, and homeowner’s insurance. It will weigh credit history, and to make matters worse, it will “haircut” the value of retirement assets and income, such as from an IRA. The vast majority of borrowers have little income and no investments, and often bad credit. The net effect of will be that reverse mortgage will only be available to financially stable seniors, as something of a luxury item.
HUD has already gone through the mandatory commenting period that accompanies federal rulemaking, so reverse mortgage financial assessment is primed for implementation. Previously the guidance from HUD was that lenders would be given an adjustment period. A complete copy of the new reverse mortgage financial assessment regulation- all 59 pages of it- is available at http://www.ureverse.com.