November 20, 2014
In 2014, the FHA changed many of the rules associated with Home Equity Conversion Mortgages or HECM loans.
One of those rule changes involves a new requirement that lenders perform a financial assessment of potential HECM borrowers to insure the applicants are not only qualified for the program on a financial basis, but also to insure they are able and willing to abide by HECM loan requirements.
According to the FHA Mortgagee Letter, “Revised Changes To The Home Equity Conversion Mortgages Requirement”, there were major reasons for the policy changes. “An increasing number of tax and hazard insurance defaults by mortgagors led FHA to establish in Mortgagee Letter 2013-27 a requirement for a Financial Assessment of a potential mortgagor’s financial capacity and willingness to comply with mortgage provisions.”
As a result, “Effective for case numbers assigned on or after March 2, 2015, mortgagees must complete a Financial Assessment of all prospective mortgagors prior to loan approval, and must fully comply with the requirements set forth in Mortgagee Letter 2014-22 and…the HECM Financial Assessment and
Property Charge Guide.”
The new requirements state the lender is responsible for:
“–performing the credit history/property charge payment history and cash flow/residual income analysis;
–documenting and verifying credit, income, assets and property charges;
–evaluating extenuating circumstances and compensating factors;
–evaluating the results of the Financial Assessment in determining eligibility for the HECM;
–determining whether a Life Expectancy Set-Aside will be required and whether the Set-Aside must be fully or partially funded; and
completing a HECM Financial Assessment Worksheet”
Additionally:
“Mortgagees must perform a credit history analysis, in accordance with FHA guidelines, for each prospective mortgagor to determine if the mortgagor has demonstrated the willingness to meet their financial obligations by analyzing each mortgagor’s credit and property charge history.”
Borrowers who are considering their HECM loan options should approach these credit checks and financial assessments seriously–it’s best to treat a HECM loan the same way you would a refinance or even a new purchase mortgage loan.
Come to the application process with at least 12 months of on-time payments on all financial obligations for best results. It’s also a very good idea to order copies of your credit reports to see what the lender will see when running your credit standing and financial assessment.
Do you have questions about FHA home loans? Ask us in the comments section. All comments and questions are held for moderation.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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