We now have a financial assessment for HECM reverse mortgage borrowers. HUD calls for HECM lenders to evaluate the borrower’s willingness and capacity to timely meet their financial obligations and to comply with the mortgage requirements,” We review history of paying property taxes, homeowner’s insurance, HOA dues and consumer debt. In the past we had found that some borrower’s were still unable to meet their financial needs even after receiving the HECM and ended up in trouble with property taxes and other homeownership requirements. As a result, HUD suffered losses and lenders had to advance funds to make these payments. Implementing the Financial Assessment guidelines resulted in a safer program for everyone involved. We are assured borrowers can afford to continue to live in the home and pay obligations.
The qualification is not the same as a normal mortgage loan as we use a residual income method based on your income, family size and the region of the country where you live. Satisfactory credit includes making all housing and installment payments on time for the previous 12 months and no more than two 30-day lates in the past 24 months. And no major derogatory credit on revolving accounts in the previous 12 months. But with extenuating circumstances that can be explained and documented, we may be able to set aside funds as a tax and insurance reserve account, called a LESA (Life Expectancy Set Aside). The formula is based on current property taxes, homeowner’s insurance premiums, expected interest rate and life expectancy of the youngest borrower.
For the complete HECM Financial Assessment and Property Charge Guide, Click Here