Up until recently, the only requirements for a reverse mortgage were that the applicant be at least 62 years old and have substantial equity in his or her home. If those requirements were met, and the applicant stated a willingness to pay the taxes and insurance, he or she had a pretty good shot at getting the loan.
However, there was no tough scrutiny of the applicant’s financial resources. During the recession, thousands of borrowers defaulted on their tax and insurance payments. In addition, real estate values plummeted, producing huge losses on defaulted and foreclosed properties, forcing the Treasury to bail out the FHA in 2013.
As of April 27, 2015, applicants will have to document their employment status, income and financial assets as well as undergo an analysis that examines their monthly expenses and cash flow.
This will undoubtedly reduce the volume of reverse mortgages applications, but it will also prevent financially weak borrowers from taking out loans they can’t handle.