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Financial Assessment on HECM Loans

Dear Licensed Partner,

An increasing number of tax and hazard insurance defaults by borrowers on Home Equity Conversion Mortgage (HECM) loans have led the Department of Housing and Urban Development (HUD) to establish a requirement for a Financial Assessment of a potential borrower’s financial capacity and willingness to comply with mortgage provisions. Effective with case numbers assigned on or after March 2, 2015, HUD requires a Financial Assessment to be completed for each prospective borrower as part of the HECM loan approval (Mortgagee Letter 2014-21  and 2014-22).

The Financial Assessment will include:

  • Documenting and verifying credit, income, assets and property charges
  • Evaluating extenuating circumstances and compensating factors
  • Analyzing credit history/property charge payment history and calculating cash flow/residual income 
  • Completing a HECM Financial Assessment Worksheet  

Based on the results of the Financial Assessment, a Partially- or Fully-Funded Life Expectancy Set-Aside may be required. The Life Expectancy Set-Aside is the amount withheld from the proceeds of the HECM for the projected payment of property charges during the life of the borrower and will be calculated based on the following:

  • The life expectancy of the youngest borrower;
  • The HECM expected average mortgage interest rate; 
  • The sum of the current property taxes and homeowners and flood insurance premiums; and
  • A factor to reflect increases in tax and insurance rates. 

Fully-Funded Life Expectancy Set-Aside: may be required for both adjustable and fixed interest rate HECMs and Sun West will be responsible for making timely property tax and insurance payments. 

Partially-Funded Life Expectancy Set-Aside: may be required for adjustable interest rate HECMs only and the borrower will receive semi-annual payments from Sun West, which must be used to make timely property tax and insurance payments. 

Below is a quick summary of how Sun West will analyze the Financial Assessment:

Credit Analysis Result Is Life Expectancy Set-Aside Required?

Derogatory Credit resulting from inability to manage his/her financial obligations. Examples include foreclosure, late mortgage payments, defaults, etc.

Yes, Fully-Funded Life Expectancy Set-Aside.

Satisfactory Credit evidencing no late payments on a mortgage or installment debt in the previous 12 months and no more than two 30-day late payments on any installment debt or mortgages in the previous 24 months.

Derogatory Credit resulting from extenuating circumstances.

No, the borrower may elect to have a Fully-Funded Life Expectancy Set-Aside or to be independently responsible for property charges.


If you have any questions, please contact your Client Relations Manager at (855) OK-SUNWEST or (855) 657-8693.


Sun West Mortgage Company, Inc.
18000 Studebaker Road, Suite 200
Cerritos, CA 90703
Phone: (800) 453-7884
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Equal Housing Opportunity This information is provided to licensed brokers/lenders only and may not be copied or distributed to customers or potential customers. All loans are subject to approval. Certain restrictions may apply. Listed pricing is a morning indication only. Program rates, prices, guidelines, fees, costs, terms and conditions are subject to change without notice.