2015 Reverse Mortgage Update and Considerations
Non-Borrowing Spouse - On June 12, 2015, HUD issued Mortgagee Letter 2015-15 which made significant concessions to non-borrowing spouses from Reverse Mortgages taken out by their spouse while leaving them off the loan and title. This applies to case numbers assigned prior to August 4, 2014 when a mortgagee letter liberalizing the rules going forward took effect.. This was effective immediately. See the Mortgagee Letter for details and exceptions.
A previous Mortgagee letter issued earlier in the year provided a Mortgagee Optional Election (MOE) that gave some relief to non-borrowing spouses but was very restrictive. This new mortgagee letter is very liberal and should solve most cases where a non-borrowing spouse could be foreclosed on when the borrowing spouse died.
In general, non-borrowing spouses may also remain living in the home on the condition that they were legally married to the borrowing spouse at the time of the reverse mortgage’s loan closing, or if they were engaged in a committed same-sex relationship with the borrower akin to marriage but prohibited under state law from legally marrying the borrower at the time of the loan’s origination, but became legally married prior to the death of the borrower, FHA stated.
I get a lot of questions from children of reverse mortgage borrowers who are trying to stay in the home without repaying the loan after their parents have died or left the home. This does not apply to them.
Financial Assessment - Effective April 27, 2015 a MAJOR change occurred. It is referred to in the industry as Financial Assessment. Reverse Mortgage borrowers will now need to qualify on their ability and inclination to stay current with property taxes, homeowners insurance and normal home maintenance. HUD Mortgagee Letter 2014-22 established this effective March 2, 2015 and later delayed to April 27, 2015. This Mortgage Letter also includes a Revised HECM Financial Assessment and Property Charge Guide. This is an 87 page detailed guideline for lenders. I wouldn't recommend spending any time on it unless your are really, really detail oriented. Your loan officer can ask you questions and narrow down what the requirements might be for you.
Ability will be measured by the underwriting examining the borrower's cash flow. They will look at income documents much like a regular mortgage. However, there are not fixed debt to income requirements like a regular (we call them forward) mortgage. They will also look at assets and taken that into consideration. They will then look at regular expenses such as taxes and insurance, revolving and installment payments and a factor based on the family size and area of the country to estimate other costs to live.
The underwriter will look at a credit report to determine your inclination to make those payments. This also will not be rated on a specific FICO score. Each loan will be looked at individually. If you have generally been on time, this may not be a big issue. You will probably be required to prove that you have been on time with property tax and homeowners insurance payments for the past two years. Cancelled checks may be all that is needed.
There is a serious consideration of Extenuating Circumstances and Compensating Factors. This takes into account why you might not have met the basic guidelines and/or whether it appears likely you will be able to in the future.