MetLife Makes History, Implements Financial Assessment for Reverse Mortgages

November 4th, 2011 | by Elizabeth Ecker Published in News, Reverse Mortgage | 64 Comments

MetLife Inc. (NYSE: MET) has announced to its retail and wholesale origination channels that it will require a financial assessment of all of its reverse mortgage borrowers beginning on November 14.

The announcement comes following underwriting guidance published by the National Reverse Mortgage Lenders Association last week that aims to assist lenders in assessing whether reverse mortgage borrowers are able and willing to pay the taxes and insurance on their loans. On the forefront of an industry push to assess borrowers in advance of Federal Housing Administration guidance that officially specifies how lenders should underwrite, it is a first in terms of requiring this kind of credit history or a detailed assessment of cash flow to qualify borrowers, and it will rule out some borrowers who were previously able to get a HECM loan.

“When we think about financial assessment we think about it in the context of responsible lending,” said Craig Corn, vice president of MetLife and head of its reverse mortgage division. “It is ensuring applicants can responsibly meet the obligations of the HECM loan, but also that they can responsibly age in place and meet the essential expenses of living. That was the spirit of financial assessment to us. If we determine after analysis that someone has $100 a month left over, maybe a HECM is not the right thing for this individual. Maybe we should look at other options.”

While FHA has not made an official rule on the issue, Acting Commissioner Carol Galante issued a statement in October to the effect that there is nothing stopping lenders from conducting such an assessment.

“That was important to us and should be important to the industry, the position FHA has taken,” Corn said.

The MetLife assessment focuses on three criteria including residual cash flow, credit history and principal limit usage (PLU), all in an effort to determine the borrower’s willingness and ability to meet ongoing loan obligations after closing on their reverse mortgage, MetLife said in an email distributed to its originators.

For residual cash flow, borrowers will document the past two years of income through tax statements and will be subject to a regional minimum set by the Veterans Affairs tables, determined by income and obligations.

Under credit history, MetLife will look at whether the borrower’s existing mortgage is current and will see that the borrower has not made any late mortgage payment beyond 30 days in the last 24 months. Additional assessment applies if there is a history of bankruptcy, foreclosure or outstanding judgements and tax liens.

Finally, the principal limit usage will be determined based on a borrower’s outstanding mortgage balance, debts and repairs. In order for the borrower to qualify, the PLU must be less than or equal to 75% for a HECM Standard (and less than or equal to 90% for a HECM Saver).

If the requirements are not met, the originator may consider “compensating factors” in order to qualify the borrower. If an applicant is particularly strong on one point of the assessment, for example, it could make up for weakness in another area, Corn said. The decision will come down to the underwriting. Some may not qualify.

“It’s an unfortunate element,” Corn said. “Some people just may not qualify. But if it ensures the program is outstanding for many years to come then I think we’ve done a really good thing.”

The implementation, which will begin on November 14, will require some adjustments, both for MetLife and those in the industry who originate for the company, Corn said.

“MetLife has added additional resources to handle what will be a lot of questions. People will get used to it, like anything,” he said.

Being on the forefront of the process, the company expects necessary adjustments as the HECM program changes, and says it has worked closely with other industry players including FHA to develop the assessment.

“Our hope is that the industry converges around something that looks similar,” Corn said.

Written by Elizabeth Ecker

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Anonymous

Mr. Rosengarden,

I have had a few conversations with national office on Savers. They are designed to be a real benefit to the more affluent. And, yes, to some degree the more affluent are underserved.

FHA would like significant growth in Saver endorsements. The ongoing MIP should not be needed for Savers so that it will help the MMI Fund grow; in other words, this a potential profit center for HUD so that it can help the more needy without substantial change to MIP or PLFs.

Eventually MetLife will balance its apetite for net profit with the need to mitigate contingent liabilities. We all hope these are transitions rules while HUD is creating a Mortgagee Letter reflecting the spirit of the NRMLA letter to Ms. Hill in June.

The next few months may be a difficult time for originators when it comes to application declination due to financial assessment underwriting.
Anonymous

KatyDog,
If you can opt out of property taxes using your argument that much of it goes for schools, can I opt out of paying for Medicare and Social Security (and unemployment, disability, auto insurance, life insurance, etc.) since I’m not collecting on those?

We all like to make sure we’re spending our money wisely, doubly so with our tax dollars. But the reality is that society would look very different if we all paid our own way on everything. Perhaps a case of being careful what you wish for?
Anonymous

It’s a fair question to ask – albeit tongue in cheek. Will this financial assessment restrict a sufficient number of borrowers that MetLife will be forced to do away with some of their own retail staff? In ML’s industry update phone call last week, it was stated that they applied these tests to files internally and 90% of the loan files still passed (it would be interesting to know the parameters of that test segment). From many of the comments made here and statements from other originators in my office, it seems that these assessments would not allow 90% of the files that we see to go on to closing. I agree with your suggestions that our voices ought to be directed toward those institutions that can effect a change toward more realistic financial assesments. MetLife’s upcoming endorsement numbers will certainly serve as evidence for HUD and NRMLA to consider.
I hope the original intent of this program isn’t lost in “preserving” it. There has to be a more moderate stance that will protect the interest of lenders and still deliver this beneficial product to those would indeed be able to age in place, maintaining their homes, and abiding by their HECM terms but don’t meet enough of these assessments to make this high grade.
Anonymous

Sarcasm is really not appreciated— I guess I expected a dialogue regarding a problem that every senior faces not a cute remark.
Anonymous

Payments into the SS and Medicare are federally mandated programs, that you will benefit from as you become of age. While I was working I gladly paid into these programs, since as a senior, I knew we would benefit from it. Property taxes are a state thing and are used for public schools with no benefit to a senior. If you noticed in my previous posts, I had no problem paying these property taxes prior to reaching 65.
Anonymous

The PLU rules do not apply for a purchase, which by the way, makes no sense at all. But PLU makes no sense at all.
Anonymous

Well written remarks, thanks.
Anonymous

I can certainly appreciate your desire to make your personal resources go farther – most of us are in a similar boat. My response begins with a question. Do you receive no benefit from living in a community where children are educated? There are indirect benefits that serve the community as a whole. Schools are already underfunded, pushing more of that funding to a smaller set of the populace may cause greater harm to the community than it would benefit those relieved of the tax burden… just my thoughts. As a reverse mortgage professional I am sympathetic to the needs of seniors, but I don’t think this is a viable solution to easing restrictive budgets.
Anonymous

KatyDog,

How is that sarcasm? Many seniors move to where things cost less and are more beneficial for them. I was merely suggesting an answer which hundreds of thousands of seniors have done.

We do not agree on the response or your proposal. Again my parents paid real estate taxes as did I despite not using the public grade school system. We all rent the homes we “own;” it is called property taxes. How that money is spent is up to the “landlord.” We, the joint landlords, all have the right to vote. We are just on opposite sides of the issue.

But there are places where there are no property taxes for schools, because there are no schools. That is clearly one option to your situation and desire.

I wish you the best.
Anonymous

While MetLife may go (which I doubt), the industry is not dead.
Anonymous

Why will no lender take them? Are you saying they will go into due and payable quicker? The number of loans in default are less than 10% and should go down.
Anonymous

Mr. Burrows,

With the four month lag from application to endorsement (or more), the first time that will be seen in the MetLife endorsements numbers for a full month will not be until April 2012.

Remember TPO numbers are now part of lender endorsements for purposes of the endorsement report which should be issued between April 30, 2012 and May 3, 2012. This means in some cases when we use prior year fiscal year numbers for comparison purposes it is like comparing the number of rats to the number of rabbits; they both may be numbers of endorsements but they are also very different.
Anonymous

Why set the cutoff at 65 for paying for schools? Most people’s children are out of school way before they reach 65 so why should they continue to pay until age 65? What about people who have no children, why should they pay for schools at all since they will never use it? My kids are out of school and I am under 65 and do not like paying for schools either however there are other programs my tax dollars go for that I like even less. Until we can pick and choose where our tax dollars go to I do not see how we can exclude one class of citizens from paying a tax.
http://pulse.yahoo.com/_RJQJE6K3HLHOOZCBQSPUA76B6I Bobby Socks

Really , we are talking in the “hundreds to low thousands of people” that are behind on their taxes. And the program has funded well over a hundred thousand loans Now Lets compare the default rate to Fannie loans, Freddie loans, or any forward FHA loan in the past 10 years…..Now can you say the reverse mortgage has easily the lowest default rate by a landslide.

MetLife Makes History, Implements Financial Assessment for Reverse Mortgages

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