Why We Love the New Financial Assessment Law
On April 27, HUD made the biggest change to reverse mortgages in a long time. For years prior, just about anyone who had equity in their home, regardless of financial circumstance, could get a reverse mortgage. This meant that anyone could be in default on debt, in a current foreclosure, or in such dire circumstance that they couldn’t even put food on the table.
A reverse mortgage seemed to make sense for many of these people. It seemed to bail them out of a desperate situation in the short term. Yet for many, it was more like winning the lottery. Inundated with cash relief and no prior discipline to manage it. What happens when people who are already destined to lose it all suddenly win the lottery? They spend it all within one year and then blame everyone else for their loss when the creditors come calling.
Financial Assessment (FA) still allows many very good people, who are in dire circumstances, to reap the benefits of a reverse mortgage. But FA identifies the right people who deserve it.
For us, everything is about listening carefully that the borrower tells us about their lifestyle, goals, and challenges. We aren’t able to read between the lines of that lifestyle and these challenges unless we have a clear picture of their current financial situation – debt, income, upcoming expenses, contingency planning, etc.
Financial Assessment is a great sales tool that helps people look objectively at their situation and allows us to clearly map their future with a reverse mortgage. For some, that map doesn’t include a reverse mortgage. Why? Because even if they had one, they would still run out of money and be unable to pay taxes and insurance later. They’d lose their home.
Looking at our past data, we believe that Financial Assessment would have only weeded out 8% of previously eligible borrowers. So the impact is less than many think yet the long term impact is hugely positive. Knowing that we can provide the right people with a reverse mortgage is very comforting. FA goes a long way to securing the future of the insurance fund and the loan program, and making sure the right people use it for retirement.