At the FOMC (Federal Open Market Committee) Meeting earlier this week the “Fed” made no concrete announcements regarding the eventual increase in Interest Rates that is ultimately expected to happen. Although Janet Yellen (Federal Reserve Chairwoman) acknowledged that the Economy does seem to be gradually improving, she spoke in terms of a couple of specific metrics that are seemingly being monitored with respect to their relation to any significant changes to Interest Rate Policy. One of these is “wage growth” because, in spite of the fact that the overall Unemployment situation has improved, increases in worker wages has stagnated. The other factor cited was inflation and, here again, Yellen pointed out that despite improvements the Fed’s goal of a 2% annual inflation rate has not been achieved. There was vague talk about the possibility of Rates increasing some time this summer, but it remains to be seen what will finally be the catalyst for any increase and when that will actually occur.
Although the “Financial Assessment Component” for Reverse Mortgage (HECM) Transactions was supposed to take effect on Monday March 2nd, the Federal Housing Administration has announced that the “rollout” will now be delayed anywhere from 30 to 60 days. Over the years there has been talk about some type of Financial Assessment being instituted for Reverse Mortgages and yet it never really came to fruition. The recent announcement that it would actually go into effect in March is probably the closest it has ever come to actually being a reality…but once again the date has been pushed back. It will be interesting to see what the “Assessment Process” will actually entail…and when it will actually come to pass. No one is looking forward to this new “dimension” of a Reverse Mortgage as it runs counter to the very concept of what a Reverse Mortgage is (i.e. A Loan that you don’t make Payments on). Any and all updates regarding this topic will be closely watched and detailed here in future posts.
Although some type of “Financial Assessment” has been talked about for years in the Reverse Mortgage Industry, the practice has never fully been implemented. However, starting in March 2015 this new dimension of Reverse Mortgage Lending will actually be rolled out. In reality, what Lenders are really trying to determine is that Reverse Mortgage Borrowers have the Financial where-with-all to make their Property Tax and Homeowners Insurance Payments. The reason this is important is that failure to make these basic “Home Ownership” expenses can ultimately result in the Lender Foreclosing on the Property. Although this has always been a mandatory obligation when obtaining a Reverse Mortgage (or any type of Loan for that matter), it’s conceivable that the recent Economic Crisis (from which the Country is gradually emerging) brought about financial hardships that forced many Homeowners to default on these payments. As a result, it may be that the Reverse Mortgage Industry has become saddled with a underlying yet pervasive “myth” that the Lender was going to force the Homeowner from their Home and eventually take over the Property. This is actually far from the truth…Lenders don’t want any more “Bank Owned Properties” on their books. What a Reverse Mortgage Lender really wants is for the Home to increase in Value and for the Homeowner to remain in the Home so that when the the Homeowner eventually does leave the Home…it can be sold – resulting in the Lender capturing the Interest that has accrued over the years. So, by incorporating a Financial Assessment at the beginning of the Reverse Mortgage process, the Lender can thereby emphasize the importance of making the Tax and Insurance payments to the Homeowner. In light of that, it will make the Borrower accountable for these expenses and hopefully lessen the instances of Homeowners accusing Lenders of forcing them out of their Homes. Although the usual type of Documentation will be utilized to determine that Borrower’s have the financial means to make these payments (Tax Returns, Pay Stubs, Benefit Letters, etc,), it’s probably not the case that Borrower’s will be subjected to the same rigorous Underwriting standards used in qualifying “Forward Mortgages”, as that criteria is based upon determining that the Borrower has the “ability to repay” the Loan. A Reverse Mortgage, by design, is not expected to be repaid via the usual monthly payment process. This is yet another example of how traditional Lending Practices have to be adapted to work with the Reverse Mortgage Program.