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ARAMCO Report - Wednesday April 29, 2015

Posted by The Aramco Group on Wed, Apr 29, 2015 @ 15:04 PM

New rules in effect for reverse mortgage

The FHA implemented new rules for the reverse mortgage on April 27, 2015. To strengthen the reverse mortgage program and give it more longevity, the FHA regulations have been changed to address the roughly 10% default rate nationwide on property taxes and insurance payments that threatened the program and put tax payers at risk.

The reverse mortgage is open to potential borrowers and their spouses 62 and over, and grants access to the equity in their homes as cash without monthly mortgage payments.

The good news is that, despite the new requirements, it is still a lot easier to qualify for a reverse mortgage than it is to qualify for a traditional mortgage. Unlike traditional mortgages there is no maximum debt to income ratio requirement and no minimum credit score requirement. There is still an analysis of your residual income and of your credit, but these standards are easier to achieve.

Home buyers and homeowners refinancing with traditional mortgages will find that conforming no point 30-year first rates average 3.875 percent while 15-year rates average 3.125 percent.

For more information on a home purchase, refinance, or a reverse mortgage, visit our website at Aramco.Biz or call me at (877) 700-0942. This is Mehran Aram with today's ARAMCO Report.

Ask Mehran Aram

Topics: Reverse Mortgage, HECM, financial assessment, Reverse Mortgage Program, 30 year fixed rates, retirement planning, FHA

Life-Expectancy Set Asides — Buzz Words to Borrowers

Posted by The Aramco Group on Tue, Apr 7, 2015 @ 15:04 PM

The Other Half of the Financial Assessment

Life-Expectancy Set Asides

This is post 3 of 3 introducing the New Reverse Mortgage and how the new Financial Assessment may Impact you and your loved ones.

 
If you would like to avoid any of the hassles described below, then
 Call The ARAMCO Group and
Apply for a reverse mortgage
Before April 27th, 2015

 

The Financial Assessment

Any reverse mortgage loan that is originated on or after April 27th, 2015 will subject the borrower to the Financial Assessment. As we have discussed, that assessment requires that potential borrowers submit a good deal more paperwork than they previously needed to. That paperwork is intended to help the originators, the underwriters, the processors and the lenders understand a borrowers’ “willingness and ability” to meet the basic financial obligations of this loan.

The FHA has provided the mortgage market with the basic guidelines of how this is going to work: your income, assets, and credit payment history will be considered, and the lender will determine if you have demonstrated “willingness” and “ability” to be an ongoing partner in maintaining your home.

What are my obligations again?

You will be required to continue to pay your property taxes, homeowner’s insurance, and flood insurance for the lifetime of the loan.

What happens if you do not have a demonstrated “willingness” and “ability” to meet these obligations? 

If you do not meet these two requirements—which are defined below—then the FHA and HUD require lenders to set aside a portion of the reverse mortgage’s proceeds to cover these costs either partially or in-full.

Not meeting these obligations is the number one reason for default on a reverse mortgage, so it is important that these payments be made. The FHA and HUD’s intention is to make sure that the New Reverse Mortgage is as secure as it ever has been for borrowers. One of the results of this change is that, depending on your financial history over the last 24 months, you may not receive as much of the loan’s proceeds as you would if you had filed before April 27th, 2015.

Willingness to meet your obligations

Fortunately or unfortunately, depending on how you look at it, proving that one is willing to maintain one’s property taxes, homeowner’s insurance and flood insurance obligations is the simplest and possibly most subjective part of considering your application for a reverse mortgage. Does your credit history reflect multiple delinquent payments that cannot be explained by extenuating circumstances (see the previous post) and proven by documentation?  That might look like willing disregard about not paying people you owe on time. Also, however unlikely it is, if you or your borrowing spouse are too rude, glib, or playful about the need to meet these obligations, the underwriter may determine that you are “unwilling” to do what needs doing. If you and your spouse have explanations for any problems with your credit report, and engage your loan application with dignity, then this should not be a problem.

If the underwriter determines that you are “unwilling” to meet your obligations, for any reason, then they will be automatically required to impose a fully-funded set-aside.

The lender uses that portion of your loan’s proceeds to pay your property’s obligations on your behalf. They are required to pay them promptly and inform you well in advance if there is a looming concern that needs addressing.

Ability to Meet your Obligations

The Financial Assessment will require you to submit a range of information about your credit, assets and income — as was mentioned above and shared in the last blog post.

Your “ability” to meet your monthly tax and insurance payments has more of a sliding scale than did your “willingness.” That’s easy to explain: were you willing to provide for your obligations? Yes or no? But you can easily see that one’s ability to pay is determined by a lot more factors than that: income sources, credit, asset bases, and home value/potential reverse mortgage proceeds are just a few of those factors.

Your loan originator is the only one can explain the specifics of how the Financial Assessment will gauge your ability to meet your obligations, but there are a few things that you can anticipate.

What will be deemed “Satisfactory Credit”?

The previous post explained how important credit history will be to assessing your application. The loan officer may consider the borrower to have “satisfactory credit if”:

 (From the HUD Manual on the Financial Assessment)       

    • The [borrower] has made all housing and installment debt payments on time for the pervious 12 months and no more than two-30 day late mortgage or installment payments in the previous 24 months; and
    • The [borrower] has no major derogatory credit on revolving accounts (credit cards, etc.) in the previous 12 months.

Major derogatory credit on revolving accounts shall include any payments made more than 90 days after the due date, or three or more payments more than 60 days after the due date.

If a [borrower’s] credit history does not reflect satisfactory credit as stated above, the [borrower’s] payment history requires additional analysis.

Now you know what HUD deems to be a minimum threshold on your credit history. A 24 month period without credit problems to this level will not automatically require a set-aside.

Note: The lender will still have to evaluate your income and assets, and they may still determine that one must have either a fully-funded or partially-funded set aside.

Continue reading to find out what the difference is.

Fully-Funded vs. Partially-Funded Set Asides

If one needs a set-aside to get a reverse mortgage, then the amount of funding needed is based on a formula that accounts for the following:

  • The projected sum of:
    • Current property taxes;
    • Homeowners insurance premiums; and
    • Flood insurance premiums.
  • A factor to reflect increases in tax and insurance rates:
  • The HECM expected average mortgage interest rate; and
  • The life expectancy of the youngest borrower.

 

A Fully Funded Set-Aside is required when it seems you will not be able to meet your monthly payments. The full amount of the set-aside formula is taken out of the proceeds of your reverse mortgage, and the bank pays the fees directly.  The borrower remains responsible for all other property charges.

Note: A borrower can elect to have a fully-funded set-aside if they think it sounds like a good plan for their personal situation. If a borrower elects to institute a voluntary set-aside, then it must be fully funded.

A Partially Funded Set-Aside is for if you seem to be capable of managing a portion of what a fully-funded set-aside would have required. Your lender may set up a partially-funded set-aside with a smaller part of the proceeds from the reverse mortgage than would have been used for full-funding. The funds will be disbursed to you every 6 months. The borrower is the one that remains responsible for timely payment of all property charges.

Note: If the formula spits out that you require a partially-funded set-aside that is 75% (or above) of what the fully-funded set-aside would require, then you must have a fully-funded set-aside.

Don't Worry - The ARAMCO Group is here to help.

Conclusion

The New Reverse Mortgage is going to be here on April 27th, 2015. The Financial Assessment is the newest set of regulations passed down from the FHA and HUD, and it will change the way that reverse mortgages are originated in the United States. 

The New Reverse Mortgage will still be a powerful tool for any aging American who desires greater financial flexibility in their retirements, but applying will be more involved.

The Financial Assessment is designed to ensure—as much as is possible—that the New Reverse Mortgage is as secure for borrowers as it has ever been. Keeping up with your property taxes, homeowner’s insurance and flood insurance over the lifetime of the reverse mortgage is the most important part ensuring security with a reverse mortgage. Now you know more about how the Financial Assessment will influence you before and after it is imposed, and you and your loved ones can make informed decisions about your future with the New Reverse Mortgage.

 

Call ARAMCO toll-free at (760) 438-2552 or email us at info@ARAMCO.biz if you have any more questions or if you would like any assistance at all about a reverse mortgage.

### 

This series of blog posts serves as an introduction to the New Reverse Mortgage and is not meant to be an exhaustive source of information about the qualification for, terms of, or requirements of the New Reverse Mortgage. Please consult a Loan Officer at the ARAMCO Group or your licensed financial advisor for more information on this product.

Topics: Reverse Mortgage, HECM, financial assessment, Reverse Mortgage Program, mortgage, Life Expectancy Set-Asides, Set-Asides

What Information will I need in order to Qualify After the FA?

Posted by The Aramco Group on Mon, Apr 6, 2015 @ 13:04 PM

This is part 2 of 3 explaining the “New Reverse Mortgage” and the Financial Assessment that will change the program on April 27th, 2015

 

Qualifying for a reverse mortgage will require more documentation than it used to. The Financial Assessment’s legacy will be that it requires you to collect information on your assets and on your incomes/expenditures for the last two years — in as comprehensive a fashion as is possible.

That should be enough information to determine whether a potential borrower qualifies, but your loan originator and any FHA certified counselor that you end up working with will be the ones to direct you more specifically.

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How will the lenders or originators be reading that information?

The Financial Assessment sets some new rules for lenders to follow, but it also leaves wiggle room for lenders to evaluate each individual application. The new rules understand that no one person’s financial life fits neatly into a template. There are plenty of chances to explain any extenuating circumstances you may have come to pass in your life. What counts as “extenuating circumstances” and how to use them will be explained below.

The preliminary information you will have to provide will be in 12 different categories, but do not despair. As was said above—about providing information on your incomes/expenditures and assets for the last two years — should cover most of the information needed. The Financial Assessment just breaks that information down into 12 categories as follows:

A) Property Charge Payment History

B) Credit History

C) Assets

D) Imputed Income (value of assets minus taxes they may be subject to only if sold, e.g. stocks and capital gains tax)

E) Estimated Maintenance and Utility Expenses (from a formula of $0.14/sq. foot)

F) Monthly Effective Income

G) Current Monthly Property Charges/Rates

H) Other Monthly Expenses

I) Residual Income

J) Monthly Property Taxes as Percentage of Monthly Income

K) Extenuating Circumstances

L) Compensating Factors

Some of the above information is just a statement of how much you own. Property Charge Payments and Credit History information is a little different. If you are wondered what a lender may be looking at when they look at these records you can know the basics now:

As per the Financial Assessment rules, they will be assessing whether you are current and/or delinquent with the following Property Charge Payments:

  • Real estate taxes
  • Other assessments
  • HOA/PUD/Condo Fees

The originator will also check the amount of insurance in place on your home during the last 12 months of the following types and whether you have been delinquent on payments at any time in the last 24 months:

  • Hazard/Homeowners Insurance
  • Flood Insurance

What about my credit?

Research at The Ohio State University has shown that potential borrowers with lower credit scores are more likely to end up in default.[i]  The Financial Assessment will therefore check your numeric score, but will more specifically check whether you have had any delinquent payments on any of your lines of credit over the last 24 months. They will make note of whether those delinquent payments were still outstanding at 30, 60 & 90 days, and they will count the number of times.

A mark against your lines of credit over the last 24 months does not immediately disqualify you from getting a reverse mortgage however. The Financial Assessment leaves room for extenuating circumstances. We will explain that now.

What Extenuating Circumstances can I Bring up to Help me Qualify for a Reverse Mortgage?

The FHA and HUD have demonstrated that they understand that no one’s financial lives fit perfectly into a narrow set of expectations. Instead, they have left room for potential borrowers to explain negative occurrences in their financial history, and the process has a capacity for understanding.

The following section is directly from HUD’s manual.

Extenuating circumstances beyond the mortgagor’s control may include, but are not limited to:

  • Loss of income due to the death or divorce of a spouse that directly resulted in late payment of obligations;
  • Loss of income to the potential borrower’s or spouse’s unemployment, reduced work hours or furloughs, or emergency medical treatment or hospitalization that directly resulted in late payments of obligations; or
  • Increase in financial obligations due to emergency medical treatment or hospitalization for the potential borrower or spouse, emergency property repairs not covered by homeowners or flood insurance, divorce or other causes that directly resulted in late payments of obligations.

As you can tell, leeway may be made for circumstances outside of a potential borrower’s control. It will be up to the originator, underwriter, and lender to interpret these types of situations, and if the borrower can prove with documentation that an event directly led to a missed obligation, then the problem may not disqualify a borrower from a reverse mortgage.

We have now talked about half of how the Financial Assessment is going to change the Reverse Mortgage on April 27th, 2015. It will require more paperwork, and that will make it more difficult to qualify. The other half of the Financial Assessment is the “Life Expectancy” Set Aside that some borrowers may have to deal with.

Check back tomorrow for information on the Set Asides and how they may effect you and your loved ones.

 


[i] Moulton, Stephanie, Haurin, Donald & Shi, Wei, An Analysis of Default Risk in the Home Equity Converstion Mortgage (HECM) Program (January 25, 2015)

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2468247

 

Topics: financial assessment, credit, credit report, mortgage news, Mortgage Market, Mortgage applications, Mortgage application

The Financial Assessment & The New Reverse Mortgage

Posted by The Aramco Group on Fri, Apr 3, 2015 @ 13:04 PM

What is the Financial Assessment?

Monday April 27th. That is the day that the Reverse Mortgage will change in America.

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The reverse mortgage had the most straightforward qualification process for borrowers of any common tool that exchanged equity in one’s home for cash — much more so than conventional mortgages and home equity lines of credit (HELOC).  The average senior already qualified for a reverse mortgage if they were at retirement age and owned their own home. The new Financial Assessment that is being implemented on the federal level as of April 27th may make it more difficult to qualify for the New Reverse Mortgage, and it will definitely require more paperwork.

The conventional mortgage or other HELOC require borrowers to pay back the interest (and usually the principal) on the loan in installments on an ongoing and monthly basis. The reverse mortgage, by contrast, does not require ongoing monthly mortgage payments. It is paid back in full, with interest, once the last qualified borrowing spouse leaves the house — usually from the proceeds from the home’s sale.

The primary qualifications for the reverse mortgage used to be making sure that at least one spouse was of retirement age (62), and that the borrowers owned at least 51 percent of their home’s equity. Borrowing limits were then calculated based on the age of the youngest borrowing spouse.  The older that person was, the larger the potential loan amount.

The new rules call for lenders (or originators like The ARAMCO Group) to assess the financial resources of potential borrowers in a way that was never before required. Potential borrowers may be familiar with the amount of information that they have needed to provide while seeking out a conventional mortgage (or refinance, or home equity loan, etc.). Many national lenders have equated the amount of information that is going to be needed to what has been required for each of the conventional home loans. In short, potential borrowers will have to provide more paperwork, and in some cases borrowers who would have qualified before the Financial Assessment no longer will.

There were several reasons for the change and they all, in one way or another, relate to preventing borrower default. The terms of every reverse mortgage require that the borrower keep their property taxes and homeowners’ insurance, etc., current so as to protect every parties’ investment in the home and the loan. Paying these things is easy to do, and you have been doing it for your entire life to this point. Not doing so however triggers notices, and is the most common reason for default and foreclosure with reverse mortgages.

Note: The FHA insures reverse mortgages so neither the borrower’s estate nor the lender loose out if home prices depreciate instead of appreciate. The insurance makes it so that the largest asset in most American’s estates does not go underwater. And the reverse mortgage is a non-recourse loan meaning that the lender can never come after you or your estate for any reason. 

The Financial Assessment is built to make sure that defaults and foreclosures are kept to an absolute minimum. It does that in two ways: 1) The financial assessment will require borrowers to provide more information about their credit, income(s) and assets in order to make sure they will be able to pay those ongoing fees for their personal taxes and insurance; and 2) it allows the lender to require some borrowers to set aside a portion of the principal of their loan to ensure that those payments are made for the entire lifetime of the reverse mortgage — if it seems that the borrower may not be able to meet those obligations without help.

Even though the Financial Assessment makes the application process more arduous, it is built to make as certain as is possible that qualifying borrowers should have a capacity to financially meet their requirements for the lifetime of the loan. 

The Financial Assessment’s rules also set up standardized procedures for one’s lender to take a proactive approach to alerting a borrower of a problem and/or address a concern. The Financial Assessment is built to make sure that the New Reverse Mortgage is as safe for borrowers as it ever has been.

Check back with us tomorrow to find out what information you will need to provide in order to qualify!

Topics: Reverse Mortgage, financial assessment, Reverse Mortgage Program, loan process, Loan, retirement planning, Mortgage applications, Loan Options

ARAMCO Report Friday 27, 2015

Posted by The Aramco Group on Mon, Mar 2, 2015 @ 08:03 AM

According to the National Association of Realtors, January pending home sales rose 1.7%, they were expected to rise by more than 2%. But year over year sales were up by 8.4%. RealtyTrac’s U.S. Home Flipping report showed that the share of all single family home sales that were flipped last year fell to 5.4%, the lowest since 2011. Conforming no point 30 year fixed mortgage rates average 3 7/8ths with 15 year rates closer to 3 1/8th. As for reverse mortgages, the FHA’s new deadline for the implementation of financial assessment is now April 27th. And now for something completely different… Did you know that due to the popularity of cellphones, public phone booths in Osaka, Japan were converted into aquariums by students of the Kyoto University of Art and Design. The ones in the U.S. could use some creativity. 

For more information on a home purchase, refinance, or a reverse mortgage, visit our website at Aramco.Biz or call me at (877) 700-0942. This is Mehran Aram with today's ARAMCO Report.

Ask Mehran Aram

Topics: home sales, Reverse Mortgage, financial assessment, RealtyTrac, 30 year fixed rates, National Association of Realtors, Japan, Phone Booths, Osaka

ARAMCO Report - Thursday February 26, 2015

Posted by The Aramco Group on Fri, Feb 27, 2015 @ 10:02 AM

The big news of the day in the mortgage market was on the FHA insured Reverse Mortgage product. HUD’s Mortgagee Letter 2015-06 announced that the March 2nd deadline for the implementation of the new financial assessment rules had been extended to April 27th. After that date, seniors getting a reverse mortgage will need to have their income credit and assets documented and verified to get a reverse mortgage. Meanwhile regular conforming no point 30 year fixed mortgage rates average 3 7/8ths with 15 year rates closer to 3 1/8th. And now for something completely different… Did you know that the U.S. has 19 aircraft carriers? The rest of the world combined have only 12 aircraft carriers.

For more information on a home purchase, refinance, or a reverse mortgage, visit our website at Aramco.Biz or call me at (877) 700-0942. This is Mehran Aram with today's ARAMCO Report.

Ask Mehran Aram

Topics: Reverse Mortgage, financial assessment, HUD, aircraft carrier, FHA, Mortgagee Letter

New and Improved: It's Not Your Father’s Reverse Mortgage

Posted by Valerie Jansen on Mon, May 19, 2014 @ 15:05 PM

While some things never change, the opposite is true for the Reverse Mortgage program during the past few years.Even though there has been considerable debate about the abundance of changes to the program, the consensus is that these changes have resulted in a strengthened program and allows borrowers to be further protected.

New and Improved: It's Not Your Father’s Reverse MortgageOn the immediate horizon of change to the Reverse Mortgage program, is the HUD Financial Assessment. For Baby Boomers contemplating Reverse Mortgages both now and in the future, these new rules will transform and enhance the program even further. Borrowers, prior to application, will have a clear picture of their current financial situation and how it will change as a result of using a Reverse Mortgage for retirement planning or other financial goals. This is change that is definitely for the better.

From a Borrower’s and an Originator’s point of view, the new rule is both a challenge and an opportunity.  The challenge for the borrowers would be presenting more information, questions and paperwork up front, and resulting in longer presentations and further borrower education for the Loan Originators. Ultimately, the opportunity is invaluable and worth the challenge as it produces increased clarity and certainty that a Reverse Mortgage is the right long-term choice for the Borrower.  It’s a sustainable decision that the homeowner can rely on to serve them well, accomplish their goals, and also gives the Loan Originator a feeling of truly serving the needs of their client. 

An additional benefit of the financial assessment is the choice to bring your advisors into the decision making process. Whether it be family, mentors or professionals that you have relied on for guidance over the years, don’t be reluctant to include them in the equation.  A Reverse Mortgage can be a powerful tool in financial planning.  While it may not be for everybody, it can be perfect for some--even financial planners and investment advisors are quickly discovering its tremendous value.

The bottom line is that this financial assessment is not a pass-fail. Unlike in the forward market, it won’t cause a denial but rather, it will simply determine whether or not the borrower will need a "set-aside" payment for future property taxes and homeowners insurance.  Think of it as the “New, Improved Reverse Mortgage”--A safer, more attractive option for all prospective consumers who are considering using their home equity in planning their retirement.

For more information on Reverse Mortgages, refinancing or on a home purchase contact us at www.ARAMCO.biz or call 877-700-0942. 

Learn More

Topics: Reverse Mortgage, financial assessment, Reverse Mortgage Program, Aramco Financial, Housing and Urban Development, HUD, Aramco Mortgage, Southern California, mortgage, Loan Options, Homeowners Insurance, property taxes, borrower

Would You Make The Cut?: New Assessment for Reverse Mortgage Borrowers

Posted by Jay Zayer on Thu, May 15, 2014 @ 15:05 PM

Later this year, the FHA will begin a financial assessment on borrowers looking to obtain a Reverse Mortgage. The purpose of the assessment is to evaluate the mortgageor's willingness and ability to meet their financial obligations.The assessment will also be used to calculate whether a portion of the Reverse Mortgage proceeds will need to be held back in order to cover property taxes and insurance in future years. According to HUD, the new financial assessment guidelines will focusWould You Make The Cut?: New Financial Assessment For Reverse Mortgages on:

•performing credit history analysis and cash flow/residual income
analysis;

• evaluating extenuating circumstances and compensating factors;

• evaluating results of the financial assessment to determine eligibility
for the HECM;

• determining if funding sources for property charges from HECM proceeds
will be required;

• completing a financial assessment worksheet; 

• verification requirements and documentation standards for credit, income,
and expenses.

Additionally, underwriters will look at the borrowers current monthly obligations (found on their credit report) and property charges that include property taxes, home owners insurance, and HOA payments. HUD will require a calculation based on the square footage of the home and is similar to the VA calculation of $.14/sq. ft. If a home is 1800 square feet, an assessment of $252/month would be included in the calculation when determining if a borrower qualifies.

Another component of the calculation will be based on the geographic region the borrower resides in. In the Southwest region, $589/month for a single person and $998/month for a couple would be added to the equation when calculating the financial assessment. For example: a couple living in Southern California who have a 2000 square foot home, $350/month in credit card debt, property taxes of $3000/year and paying $1200 for homeowners insurance would need to make $1978/month to qualify according to the new financial assessment. For many couples living in Southern California $1978/month may not seem like a lot of money however, many senior borrowers looking at a reverse mortgage are doing so because they are on a very tight budget and possibly living month to month.

Unfortunately, the few that do not pass this financial assessment may not qualify for a reverse mortgage and may be forced to sell their home. On a positive note, most borrowers will pass this new policy imposed by FHA.

For more information on purchasing a home, reverse mortgages or home financing contact us at www.ARAMCO.biz or call 877-700-0942.

Learn More

Topics: Reverse Mortgage, HECM, financial assessment, Aramco Financial, Housing and Urban Development, HUD, credit, Aramco Mortgage, Southern California, borrowers, FHA, Mortgage applications, Homeowners Insurance, property taxes, HOA Payments, mortgagor