AARP Cautions HUD About Reverse Mortgage Financial Assessment

AARP spoke out in support of reverse mortgage financial assessment in May at a Congressional hearing, but with this cautionary message to House representatives: “As long as it doesn’t go too far.”

HUD announced last year that it is developing mandatory financial assessment to be implemented by all reverse mortgage lenders. However, it is not expected to be finalized or published by HUD until late 2012.

The financial assessment will be used to determine or “qualify” future reverse mortgage borrower’s ability to pay their real estate taxes, property insurance, homeowner association dues if any, and general upkeep and maintenance of the home after obtaining a government insured HECM reverse mortgage loan.

The necessity for financial assessment came as a result of a record number of senior borrowers that are delinquent on property taxes and home insurance premiums. The lenders servicing these loans are reluctant to foreclose on senior borrowers even though they have recourse to do so. Many lenders simply pay the defaults on behalf of the borrowers and wait to be reimbursed when the home is sold at time of death.

Because future property values are extremely hard to predict in the current real estate environment, it has become clear to HUD that ultimately, if the lender cannot recover the losses at time of sale, the FHA insurance fund is on the hook to make the lender whole.

For these reasons, HUD finds it necessary to implement a financial assessment tool to determine a borrower’s ability to meet these obligations in the long term.

AARP Had This To Say

aarp reverse mortgage financial assessmentAARP representative, Lori Trawinski, Senior Strategic Policy Advisor, Consumer and State Affairs Team, AARP Public Policy Institute, went on to say: “Looking too deeply into credit and other financial measures could be harmful to consumers. AARP understands the need to examine a borrower’s financial ability to pay property taxes, homeowners insurance, homeowners association dues and assessments, and to be able to maintain the property. However, we do not believe that credit scores, payment history, or the existence of a bankruptcy filing or foreclosure should be part of the financial assessment.”

AARP’s support of the financial assessment focuses on the borrower’s ability to get a reverse mortgage if it is needed, with an emphasis on monthly cash flow.

“The determination should be whether borrowers have the ability to meet their basic living expenses, financial obligations and property charges, and this should be determined after taking the cash flow from the potential reverse mortgage into consideration,” Trawinski said.

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