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Effective March 2, 2015 - Financial Assessments Loom for the HECM Reverse Mortgage Program

**Update - The Federal Housing Administration (FHA) announced Thursday that it will delay the effective date to begin financial assessments for all reverse mortgage applicants due to technical issues.  They anticipate a delay of 30-60 days from original March 2, 2015 deadline. 

President Reagan put the foundation in place for the government insured HECM Reverse Mortgage Program.  The mandate was to establish a path for retirees and seniors to have easy access to their home equity for their retirement years.  The program was established based on the borrower’s age and home value.  Today, with the introduction of “Financial Assessments” the program is dramatically changing and I can’t say for the better.

The new government rules derived from the financial assessments will require lenders to focus on the “Willingness” and “Capacity” of the borrower.  Does the borrower demonstrate the willingness to properly maintain their home?  Does the borrower demonstrate the capacity to pay the real estate taxes, homeowner’s insurance, and generally maintain the property?  Financial assessments will require lenders to review a borrower’s credit, income, debts, and any other financial items at their discretion to make the determination that the borrower is a good candidate for the HECM Reverse Mortgage loan.  A non-qualifying loan will be a privilege of the past.  The entitlement designed to help homeowners live a better life in retirement now will be termed a privilege in my opinion.

Where have we gone astray and confused a program that was designed to help those in need gain financial stability, whether it be in their early retirement years, or for care as they and their families deal and plan for end of life scenarios.  Our forefathers reviewed the population statistics and came to the conclusion long ago that not everyone will find their way to affluence.  The program was put in place to help the people and not discriminate against them based on financial or credit metrics. Let me remind the government that this program was not designed as a free market based program but as an entitlement restricted to a specific age group. Why must everything come down to management and exclusion based on profitability and privilege?

Unfortunately, this is what it has come to.  The government’s thought process behind the new financial assessments is to eliminate borrowers from the program that may tarnish its performance in the future.  In spite of the fact that the MIP insurance is not for profit, is paid for by all HECM Reverse borrowers, and pays the program’s losses thereby maintaining balance. Why must we put controls in place to eliminate many of those that the program was designed to help in the first place?

In my opinion, these changes are not good for the people, and represent a gross contradiction to what is being preached by our current president.  If everyone should be given a fair chance to pull themselves up financially, let us not undermine those that may have contributed all their lives but now find themselves in need.

If you or a loved one have ever had an inkling of a thought about obtain a government insured HECM Reverse Mortgage, now is the time to open the dialogue and take action.  Those that obtain an FHA case number prior to the deadline will not be adversely affected by the looming financial assessment rules. 

George H. Omilan
NMLS# 873983

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