Members of the NRMLA executive staff met with Karin Hill, Director of the Office of Single Family Program Development and other staff members at the Department of Housing and Urban Development (HUD) to discuss the financial assessment of HECM borrowers and other issues related to the program.

In conjunction with discussing the potential financial assessment of HECM borrower's ability to maintain their tax and insurance payment obligations, NRMLA Executive Vice President Steve Irwin submitted a letter to Director Hill that detailed the organization's recommendation on the structure of the assessment.

NRMLA expressed ongoing support for the concept of a rule that will require lenders to perform a financial assessment of HECM applicants, prior to both approval and closing.  The assessment should determine the borrower's capacity for making their homeowner tax and insurance payments.  For borrowers who do not meet minimum criteria, lenders should be permitted to mandate set asides for taxes and insurance, and/or limit the borrower's payment plan option.

The minimum standard NRMLA proposes that lenders document the borrower's debt-to-cash flow ratio that would result from the completing the HECM loan.  Borrower's with a 50% or lower ratio, would be given a pass and require no further evaluation.  Borrower's with a ratio exceeding 50% would then require further assessment to determine the best option for ensuring that the borrower's obligations are maintained.

A borrower who does not pass the ratio test, lenders would then need to evaluate the borrower's history of delinquencies related to property charges.  Those with a positive history of making their payments could then be required to accept a term or modified term payment plan sufficient to supplement their income to reach the 50% standard.  Those with a history of delinquencies related to property charges would then be required to have a set aside sufficient to pay the property taxes for the estimated life expectancy of the youngest borrower as detailed in the TALC.

Additionally, lenders would be given the ability to decline a loan should they determine that the borrower, even with the HECM proceeds, does not have the financial capacity to sustain their payment obligations.

In order to compensation for the additional time required to perform the financial assessment, NRMLA recommends that lenders be allowed to charge a reasonable and customary underwriting fee not to exceed $500.

This proposal represents the most detailed information provided regarding a potential rule for the financial assessment of a HECM borrower's ability to maintain their property tax and insurance obligations.  The goal is to mitigate credit risk and stress on the FHA insurance fund related to tax and insurance defaults.  HUD has yet to set a timetable for issuing new rules regarding this issue and whether such a rule change would require legislative action to amend the HECM statute.

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