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The National Reverse Mortgage Lenders Association (NRMLA) is announcing its support for the Federal Housing Administration’s (FHA) new financial assessment rule for home equity conversion mortgages (HECMs). As part of industry-supported changes to the program, the U.S. Department of Housing & Urban Development (HUD) now requires potential borrowers to first go through a financial assessment that ensures they will be able to continue paying property tax and insurance premiums. Peter Bell, president and CEO of NRMLA, applauded HUD’s move to require financial assessments.
“At NRMLA, we are always concerned about protecting those aging Americans who cannot afford to meet the responsibilities of reverse mortgage loans,” said Bell. “Financial assessment will help determine if the product is right for the potential borrower. By implementing this process, HUD is responsibly making the HECM a safer product.”
A report from a team of researchers at Ohio State University shows that utilizing credit criteria as part of a financial assessment of potential borrowers can reduce the likelihood of future default. In “An Analysis of Default Risk in the Home Equity Conversion Mortgage Program,” Stephanie Moulton of the John Glenn School of Public Affairs along with Donald R. Haurin and Wei Shi from Ohio State’s department of economics found that lower credit scores increase the likelihood of default, suggesting that a financial assessment could help borrowers and lenders determine whether a HECM is the right fit for their situation. The research is a welcome addition to the growing body of studies in support of reverse mortgages, and importantly fills the void in data needed to fully evaluate industry-supported changes implemented by HUD in 2013. Supported by grants from both the MacArthur Foundation and HUD, the OSU research team followed the outcomes of 30,000 seniors who received counseling for a reverse mortgage through Clearpoint Counseling Agency. The resulting report is the first large-scale analysis of the future of the HECM program since the 2013 changes, previously not possible due to a lack of data.