A Life Expectancy Set-Aside Is A Great Consumer Protection
A Life Expectancy Set-Aside (LESA) is simply monies set aside from the available reverse mortgage loan proceeds that can be used only to pay property taxes and homeowner's insurance for the expected remaining lifetime of the borrower. The borrower is responsible for all other property charges, such as maintenance and HOA dues.
A LESA is one of the smartest default protections provided to both borrowers and lenders.
The need for a LESA, the funding amount of the LESA, and the structure of the LESA, are based on the results of the financial assessment of the borrower. However, even if it is not required, a borrower may request that a LESA be established for security and convenience to ensure that these obligations are always paid.
There are two classifications for a Life Expectancy Set-Aside:
1. The Life Expectancy Set-Aside Must Be Fully Funded.
When the lender determines the borrower has not demonstrated willingness to meet financial obligations where residual income is sufficient, or where the borrower has not demonstrated the willingness and capacity to meet financial obligations, the LESA must be fully funded.
In the fully-funded LESA, the servicer will use reverse mortgage proceeds to pay property taxes and insurance premiums on behalf of the borrower.
2. The Life Expectancy Set-Aside Is Partially Funded.
Where the lender has determined that the results of the financial assessment show the borrower demonstrates the willingness to meet financial obligations but has not demonstrated the capacity to do so, the LESA must be partially funded.
In this set-aside, the borrower will receive semi-annual payments from the reverse mortgage loan proceeds to be used to pay property taxes and insurance premiums. The borrower remains responsible for timely payment of all property charges.