Mar 10, 2015

Reverse mortgages tougher to qualify for beginning April 27, 2015

Starting April 27, 2015, it will be more difficult to qualify for a federally insured reverse mortgage (HECM, the Home Equity Conversion Mortgage). Every prospective borrower will be subject to a financial assessment test to determine if he/she has sufficient ability to pay the real estate taxes and insurance on their homes. The applicant's credit history, debt structure, Social Security and other sources of income will be examined. Previously, only the value of the home, the current interest rate, and the age of the borrower were considered. You must be 62 or older to be eligible for a HECM.

Borrowers who do not pass the financial assessment will be denied the loan, or in some cases, could be allowed to set aside a portion of the loan proceeds to cover taxes and insurance. The set-aside may be fully funded and based on the life expectancy of the youngest borrower, or partially funded. In either case, the set-aside percentage is expected to be steep, so much so that in many cases the loan will be impractical. Click here to learn more about set-asides. (Note the article states March 2 as the effective date of the new rule, but that is incorrect: it is April 27.)

The new rule is the federal government's response to the sharp increase in the default rate in recent years. Some elderly borrowers who have been unable to pay property taxes and insurance have actually been foreclosed on and evicted from their homes.

These tougher eligibility requirement are just the latest in a series of new rules that have been instituted to address a variety of problems plaguing the reverse mortgage market over the years. Last year, for example, the rules changed in order to prevent the non-borrowing spouse from being evicted when the borrower spouse passed away.

Anyone who is considering a reverse mortgage should also be aware that securing a reverse mortgage can impact one's eligibility for means-tested programs such as SSI or Medicaid. Always check with a Certified Elder Law Attorney before taking any steps.

Read more about reverse mortgages at the HUD website.

No comments:

Related Posts Plugin for WordPress, Blogger...