The new rules will dramatically change the current government insured HECM Reverse Mortgage from a non-qualifying loan to one that requires qualifications and is subject to broad lender discretion. You can be assured that the mortgage providers will be strict because they fear the ultimate wrath of FHA. Regardless of interpretation they better get the new rules right or FHA will not insure their loans and they will be at risk. Based on this, one can only expect that lenders supporting Reverse Mortgages will be conservative to ensure their own financial integrity. You can be assured that this will put the lenders first and the homeowners second.
This means that many homeowners seeking a Reverse Mortgage many no longer be eligible. As mentioned last month, there will be heavy emphasis on the “Will and Capacity” and the lender perception along those lines that they can perform. The analysis will look at credit, income, debts, assets, physical and financial housing related items, and ultimately character. This is where the broad lender discretion will take over. As an example, older homeowners that appear to be in the category of funds of last resort that are behind on their tax returns may fail the lenders character profile. I hope I am wrong, but we will have to see so stay tuned.
Given the radical program changes fast approaching for FHA case numbers not obtained by April 24th, the question now comes down to how do we navigate these changes and win for our retirees and seniors. It’s really quite simple, Plan. If the homeowners, their families, and their financial advisors can forecast a potential need and take action earlier, before they are down to one or two months living expenses, it is my opinion that the success rates will be much higher.
I would like to give you a real life example. Let’s say you have an elderly homeowner spending $8,000 per month on in-home care. If their probable life expectancy goes beyond their current funds there are two choices when considering a HECM Reverse Mortgage. One, you can wait, as many do now, until you are virtually out of money and expect the Reverse to come to your rescue or two, you can plan and establish a Reverse Mortgage 12-24 months ahead of time.
The end result is clear. The loan underwriter will either see a desperate borrower with little liquidity seeking funds of last resort or with a plan, they will see a borrower with close to $100,000 in the bank seeking further financial stability. Which is the better risk and which scenario is going to have a better chance with the timid lenders looking to ensure that they enforce the new FHA rules?
When I dust off my old underwriting hat, the plan wins every time. Liquidity in the bank is a very powerful compensating factor. Ultimately, the program changes are going to render many ineligible in the short term, with the brunt of the changes affecting those that are no longer working. However, the good news may be that many more people will see the long term benefits of the government insured HECM Reverse Mortgage and get involved a decade earlier in their sixties. Who knows for sure, but we may even see the financial advisor community take a real interest in the program.
If you, or someone you know, is in this situation now and considering a reverse mortgage, now is the time to act. Please call or email me today to get ahead of the Financial Assessments.
George H. Omilan
President-CEO - NMLS# 873983
Jefferson Mortgage Group LLC
Helping seniors with HECM Reverse Mortgages in Virginia, Maryland and Pennsylvania.