February 23rd, 2016 | Retirement Planning, Reverse Mortgage, Seniors, supplemental retirement income, Financial Planning, Financial Assessments, HECM Reverse Mortgage, LESA, Eligibility for Reverse Mortgage
Qualifications for HECM Reverse Mortgages have gotten tougher since early 2015. FHA’s addition of financial assessments has shifted the main emphasis from age and property value to residual income, credit and debts. The issue is less about eligibility and more about a restricted versus unrestricted approval. When a home owner has been approved and the financial assessment guidelines have not been completely met, they often receive a restricted approval that requires a Life Expectancy Set Aside or otherwise termed a LESA (see my earlier blog on LESA) . This is an escrow, based on your life expectancy, to cover real estate taxes and hazard insurance. The problem with this is that in many cases it locks up a significant portion of your available principal limit thereby undermining a homeowner’s objectives with a reverse mortgage in the first place. This new phenomenon is going to erode the traditional call centers staffed with minimally knowledgeable people pressing homeowners to application to only waste their time and money. It’s no fun for a homeowner to have to start all over and pay for another appraisal because they have failed. The need for planning and financial assistance remains. Experienced experts are needed to help homeowners address their needs and navigate them through the new labyrinth that FHA has created. It is important to be aware that qualifications for a Reverse Mortgage have clearly changed.
My comment above is in response to Wade Pfau's article from Forbes today - titled "Are You Eligibile for a Reverse Mortgage?"