With now eight months of Financial Assessment under my belt, I’ve learned that there are a few things that people could do to prepare if they are planning
to get a reverse mortgage in the near (12 –24 moths) future.
Unfortunately, I’ve run into a number of situations where homeowners were not aware that actions that they took would affect their ability to qualify for
a reverse mortgage.
HUD has a new (effective December 2014) , rule about seasoning of existing mortgage loans against the home.
While it’s not technically part of the financial assessment, the seasoning issue has impacted a number of people that I have spoken to throughout the year.
It says the lender is only allowed to pay off loans against the home (such as mortgages and HELOC’s), if the loan has been in place for longer than 12
months or resulted in less than $500 cash to the homeowner, whether at the closing or through cumulative draws (as with HELOC’s) , prior to the date
of the initial Home Equity Conversion Mortgage (HECM), loan application.
What this means is that if you are planning to get a reverse mortgage in the next 12 months but you take a home equity line of credit to fix up your home
this summer, you will have to wait until that HELOC is 12 months old before you are allowed to complete an application for a reverse mortgage.
Another area that I have seen issues with is that some people don’t pay their HOA dues right on time. We have to verify 12 months of payment history for
the homeowner’s insurance and HOA dues as well as a 2 year history for your property taxes.
It is easy to pay a month late on your HOA, but this can cause trouble or at least extra hassle in qualifying for your reverse mortgage.
The other issue I see that typically only requires a letter of explanation but can be a hassle is having inquiries into your credit 90 days prior to applying
for a reverse mortgage.
If you get a zero percent interest rate deal in the mail, or want to buy a new car, or even change cable companies, they all pull your credit.
We have to know if you have opened any new credit recently and we will ask you to provide a letter of explanation about that recent inquiry.
All FHA loans have mortgage insurance on them. The fund where all the money collected goes to is called the “Mutual Mortgage Insurance “ fund (MMI).
HUD requires the fund to maintain a minimum balance of 2% of the out-standing loans that are insured by FHA.
Since the financial col-lapse of 2008, the MMI fund has been well be-low this 2% minimum threshold. The annual report that came out in November, (the government
calendar year runs from November 1 to October 31), showed the fund balance now stands at 2.07%, well above the 2014 balance of just 0.41%.
The report noted that much of the increase was driven by the FHA’s Home Equity Conversion Mortgage program. Without the HECM pro-gram, the MMI Fund would
sit at 1.65%, below the 2% threshold set by Congress.
What this means for the FHA Home Equity Conversion Mortgage program is that the changes put into place over the last few years are beginning to work. It
also shows that the people that are taking advantage of reverse mortgage are responsible and the program is a good fit to help them achieve their retirement
goals.
