Reverse Mortgage Borrower Assessment Explained

The implementation of a financial assessment tool is now imminent for reverse mortgage applications.

After Wells Fargo recently exited the business, citing borrower tax defaults as a major reason, the issue has been front and center for industry execs.

There is talk about a uniform 50% debt to income ratio being applied to all new reverse mortgage applications. Debt to income ratios would be assessed after the benefit of the reverse mortgage proceeds were taken into account. Your monthly scenario could look somthing like the following.

Before the reverse mortgage:

$1000  mortgage payment (including taxes and insurance)

$300 credit card payments

$200 car payment

$2500 net monthly income before expenses

Current Debt-to-Income (DTI) before reverse mortgage = $2500 divided by total expenses, or 60%

After the reverse mortgage:

$0.00 mortgage payment

$270 taxes and insurance

$300 credit card payments (if not paid off by reverse mortgage)

$200 car payment (if not paid off by reverse mortgage)

$2500 net monthly income before expenses

NEW Debt-to-Income (DTI) after reverse mortgage = $2500 divided by total expenses, or 31%

Congratulations, you would qualify under the proposed financial assessment tool because your new DTI is less than 50%.

With the new assessment comes the possibility of a new underwriting fee, more complications and less people getting the loan. So the question remains, when will our government, it’s agencies and the “system” be healthy enough to support programs like reverse mortgages, for all people who are age 62 and older and the largest share of them who have paid into it for many decades.

Michael Manfredi is a Reverse Mortgage Specialist 

Reverse Mortgage Concepts
Phoenix, AZ 85020
(602) 456-0009
(888) 697-5556