A One Year Look Back at Financial Assessment
A year after the implementation of financial assessment requirements, how has the industry changed?
Financial assessment (FA) celebrated its one year anniversary in late April 2016. Introduced as a new requirement of the Department of Housing and Urban Development, FA imposed specific financial checkups to ensure that mortgage borrowers were capable of meeting the financial responsibilities of their loan before being approved for financing. The purpose of FA is to essentially provide an extra layer of protection for borrowers to prevent them from entering into a financial commitment that they are unable to afford. This helps prevent borrowers from defaulting on their loans, and being at risk of foreclosure.
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What does FA analyze?
FA looks at a borrower’s credit history, assets, income, and expenses. The FA process is very similar to a conventional mortgage financial review.
Taxes and Insurance
With FA, mortgage borrowers may have the option to have their property taxes and homeowners insurance costs reserved for the lender to distribute as needed to the appropriate parties on the borrower’s behalf. This is similar to an escrow account.
How have the changes have affected the industry?
The new FA rules were a fairly big change for both lenders and borrowers; however, at Alpha Mortgage Reverse, we prepared for months to ensure our reverse borrowers and our team members would be able to make the transition smoothly. A year later, we’re fully adapted to the FA rules and have seen a positive impact due to the change. Overall, mortgage borrowers have benefited from the layer of additional protection that FA grants and mortgage lenders have benefited by seeing the potential for a reduction in loan defaults and foreclosures.
For reverse mortgage borrowers and lenders, FA provides valuable protection against loss on both sides. Since reverse mortgages are inherently more of a risk than conventional mortgages, additional financial review can offer both financial protection and peace of mind for homeowners and lenders.
If you have questions or concerns about financial assessment rules regarding your loan or a loan you are interested in, please don’t hesitate to contact our reverse mortgage experts today.