3 minute read
As it has seasoned, the reverse mortgage has become fairly well-known among average borrowers, and more seniors are considering it a viable retirement source of cash. The eligible age population continues to expand; 4,000-5,000 seniors become age-eligible for a reverse mortgage every day. Evolutionarily speaking, the product is performing exactly the way the industry expected. People are more educated on the reverse mortgage, and that knowledge has positively impacted their comfort level with the product. However, seniors are guarded and becoming increasingly frustrated since HUD’s Financial Assessment was enacted April 27, 2015. While the reverse mortgage is now a safer product than ever before, there is a sense among seniors that it has serious drawbacks that come at their own expense. This has led to a decrease in originated reverse loan volume.
Since Financial Assessment, lenders have had to underwrite loans much more strictly, and some of the product’s new safeguards are causing frustration among seniors. For instance, lenders now have to retain a reserve account from the proceeds of the loan in order to pay all property taxes and insurance over the remaining life of the loan, and this ultimately means a lot less cash back to the senior for the loan. This Life Expectancy Set-Aside, similar to an escrow account, is causing seniors to rethink the product as an option or delay their decision until they are even older. The older the senior is, the less money they will have to set aside. In the case of seniors who get a loan at age 65, their life expectancy is another 20 years. Twenty years’ worth of insurance and taxes can add up to a large sum of money.
It does not help that lenders are dealing with a group of people who want to maintain a set lifestyle. Historically, there are two types of reverse mortgage borrowers: one who wants to continue to travel and relax with family members, and the other who seeks to improve quality of life by repairing their home or paying for medical expenses. Both types want to spend their money now, which is why they are particularly exasperated by the reserved set-aside account. The mortgage industry is constantly changing in efforts to protect itself and its senior customers, and frustration comes with change. The industry, and the seniors themselves, must learn to adapt.
While there was an overall decline in reverse mortgage volume directly following Financial Assessment’s rollout, there will always be a demand for the product. To accommodate this demand while working under its stricter guidelines, there are some key ways the industry can take advantage of this new era of lending. It is in the industry’s best interest to strictly focus on reverse mortgage candidates who are somewhat funded or well-funded for retirement. Also, lenders must underwrite to the rules and not make any exceptions, or take exceptions to the absolute minimum. They must be diligent about ensuring taxes and insurance are paid up to date (which the set-aside account takes care of) and that the borrowers are still living in the property.
