Just for the elderly
Many seniors rely on Social Security and limited pension plans for their income during retirement, and it is common for monthly incomes to plummet after retiring.
Meanwhile, their financial statements and balance sheets are on the positive side, with many of their retirement assets growing in value because of the recent uptrend in the stock market. Not only that, they often have excellent equity on their homes, good credit scores to back them up, and enough money in their savings accounts just in case something happens.
Even with all that, these same individuals will still look undesirable to financial institutions when they try to apply for a new mortgage or refinance a home. Because of lender’s strict policy requiring a minimum level in debt-to-income ratio, it sets the bar too low for retirees who still have debt left to pay on their credit cards, auto loans and other debts.
Top financial institutions changing their mind
The recent recession forced credit institutions and lenders to enforce stricter underwriting standards to protect themselves from similar situations in the future. Other agencies decided to go against the flow, with some of them now changing their mortgage policies to accommodate retired seniors.
Some big players in the home mortgage industry like Freddie Mac, have moved in the direction to help retirees. They now include their remaining retirement funds when calculating their mortgage for underwriting. Not only that, they also allow other retirement assets in their calculations, which can possibly increase the chance for a loan to be approved.
Credit officials at Freddie Mac stated last week, that their policy revisions now allow seniors to supplement their incomes for underwriting by utilizing certain types of retirement funds, all without accessing any cash from the fund itself.
Financial institutions now include lump-sum distributions that seniors received from their pension or other types of income like proceeds from selling a business.
They are predicting for an increase in retirees as the baby boomer generation grows in age. Their sources estimate that 8,000 of these baby boomers are retiring every day for the next 18 years.
Criticism of the policy changes
Critics claim that its primary purpose is for the rich to get more money from the middle to upper classes. Some even predict that the move will generate foreclosures in the future. Other lenders are uneasy with the policy because they do not want the bad publicity that comes from evicting seniors from their homes in the case of default.
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