Reverse Mortgage Financial Assessment

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.