Urban Seeks Feedback on Proposed Reverse Mortgage Financial Assessment Guidelines

January 26th, 2012 | by Elizabeth Ecker Published in News, Reverse Mortgage, Reverseit | 21 Comments

Urban Financial Group notified its wholesale partners this week that it is seeking feedback on proposed financial assessment guidelines for its reverse mortgage borrowers.

In a memo obtained by RMD, Urban outlined the draft of proposed guidelines for borrowers and is seeking comments between now and January 27. The company has not indicated any time frame for implementing any guidelines, a company spokeswoman told RMD.

“It is important that the entire industry be proactive on this matter to help assure the long term viability of the HECM program,” Urban said in an email to its wholesale partners. “Before we announce our final policy, we want our partners’ feedback on our proposed financial assessment guidelines.”

Under the proposal, each loan submission must include income documentation and tax payment history.

If borrowers have defailted on their taxes within the past two years or failed to maintain up-to-date insurance on the property, the application will be reviewed to ensure the borrower meets minimum residual income requirements.

“As a leader in the reverse mortgage industry, Urban Financial Group, Inc. recognizes its duty and responsibility to finding a viable solution for the current tax and insurance default situation,” the company said in the memo.

Urban Financial’s proposal is the first following MetLife’s implementation of a new policy in November. However, RMD confirmed with MetLife this week that it has suspended that policy, effective Wednesday, January 25.

In its announcement, MetLife cited the lack of other lenders following suit as one reason for the suspension, although it remains committed to the concept and the initiative toward reducing borrower tax and insurance defaults, a company spokesman said.

Many lenders have stated their support for implementing a financial assessment, but have yet to establish official policies.

Additionally, the National Reverse Mortgage Lenders Association released “limited underwriting” guidance in October following statements of encouragement from Department of Housing and Urban Development officials in the months preceding.

Written by Elizabeth Ecker

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Anonymous

So now, all those Brokers who fled Met to Urban, will run to the other side of the boat. Reminds me of a scene from Pirates of the Carribean. The boat is rocking.

So how about everyone just stands down for a while and we look at this from the point of view of home equity assessment and use of mandatory set asides where patterns of irresponsibility exist?

Further, why on earth would we be using the IRS system as income verification, when what we need is cash flow verification? There IS a difference.
Anonymous

It is totally understandable why TPOs move from one extreme to the other — more time and less certainty and if there is declination, shopping it to the other lender anyway. This is one stop shopping at its “finest.”
John A. Smaldone

Good day,

I know I am beginning to sound like a broken record. However, I am directing this suggestion directly to Urban Financial Group.

I am requesting of Urban Financial to look into the possibility of establishing an escrow account for T&I. Treat it like the forward loan escrow account. Collect 3 months at closing to establish the account, then, have the borrower send in monthly payments. Go as far as issuing the borrowers a coupon book annually.

By approaching the T&I problem in this way you will be heading off many future defaults. I say this again and I will continue to say it again, a senior can budget their money on a monthly basis. The problem occurs when the senior get’s hit by a large lump sum payment at the end of the year when they do not have the money to pay for it!!

I realize the servicing costs will be more and it will require adjustments. However, the FA program is requiring adjustments and causing many seniors not to qualify for a reverse mortgage. I have surveyed many seniors and the answer is the same, they all would love it if they could have their lender establish a monthly budget plan!

Urban Financial can be a leader in our industry if they will look into what it will take to establish an escrow account program and if they find it feasible, implement it!Thanks,John A. Smaldone
Anonymous

Every-company-to-itself HECM “financial assessment” is a well-intentioned but wrong-headed way to address the T&I problem in the first place. It is not clear to me why Urban Financial wants to repeat MetLife’s strategic error!

What is needed is a common standard from HUD for home equity assessment (HEA) and a mandatory contingency T&I set-aside for the first three or six years of the loan.

Through NRMLA, the industry should ask HUD to come up with one standard for home equity assessment and a mandatory contingency set-aside ASAP. Nothing else will do as MetLife’s aborted move has shown.
Anonymous

John,

Are you sure any HECM lender can do this? What state law and FHA regulation can you point to which permits us to do this in the reverse mortgage industry?

If it is OK with FHA and under state laws, then it can be tested. We need to put law and approval before putting ideology into practice.

Why advocate something which could come back to bite the lender?
Anonymous

Taking the spotlight off of Urban
and MetLife for a moment to point it in the correct direction, the industry
would not be in the situation it is today if HUD had taken the bull by the
horns and done something about the issue over a decade ago. Once it was
clear that Fannie Mae was no longer going to be the significant purchaser of
HECMs they once were a few years ago, HUD should have had a contingency plan ready to go to
protect HUD and lenders.

Now we come to NRMLA.
Allegedly discussions have been going on between NRMLA and HUD on this subject
for about a decade. It is great NRMLA got something out to Ms. Karin Hill
by the middle of June last year but this is something which should have rolled
out at least a year or two earlier. But again at least NRMLA has done
something.

What has the MBA or any other
mortgage organization other than NRMLA done? Those organizations which
supposedly have active reverse mortgage sections seem impotent when it comes to
providing support when we need it. Again the MBA has done something by
writing a model state reverse mortgage act but its voice is mute when it comes
to the current problem.

Now we come to MetLife.
While most of us might not like what MetLife did, they did what they deemed was
right at the time. The bad thing is they completely backed away from
their prior position by blaming it on the rest of the industry. I have
much fewer problems with their actions than their rationale for backing away in view of their reason for doing it in the first place.

It seems Urban is trying to gain
consensus in developing its approach. That is fine but I am sure the opinions they are getting are
so divergent it is hard to construct policy around them. Eventually
leaders have to stand up and do what they believe is best for their company
first, for their customers second, and for the industry last.

My concern is that soon we could
have other industry leaders throwing up their hands like MetLife or leaving
like Wells Fargo. Each of those two gave rather poor reasons for their actions but who
can blame them for what they did?

I once wrote a RMD article
defending HUD on the timing of its action to decrease Principal Limit Factors
back in mid 2009. I now appeal to HUD to help our industry with a very
difficult problem. We need its help and we need it now!!
Anonymous

Atare,

With their responsibilities to senior management, boards of directors, and shareholders, lenders must employ the tools available to them to mitigate losses due to defaults and also to prevent borrowers from entering into mortgages which ultimately could produce more detriment than benefit. Until recently it was not clear lenders had the right to utilize financial assessment for the purpose of declining applications which do not meet minimum standards.

MetLife did the right thing but many believe its financial assessment underwriting standards were doomed from their start based on its over zealous approach. Perhaps a more moderate approach is best until HUD will act.

The industry has a 8% to 10% problem of which a significant percentage can be identified during origination. Why do all have to be impacted when 90% are doing the right thing? Three to six years could prove to be inadequate for younger borrowers. It would also hamper helping many borrowers in paying off their existing liens who have more than adequate sources after removing monthly lien obligations on the primary residence.

What the MetLife experience shows is that their path is not advisable. It most certainly did not prove anything more than that.

Among all of the participants in this process, NRMLA has provided HUD with a very good approach with some excellent recommendations in its letter last year to Ms. Hill. While the letter was flawed in several ways, the heart of its message was clear and to be commended. While I agree with the mandatory set aside concepts in that letter, there are things which can be done to lessen their impact on borrowers with little increased risk exposure to lenders. I hope to present some recommended changes to the mandatory set asides in an upcoming RMD article.
http://www.shopchevychasehomes.com/ Danny

Great point James, you are right when you stated “Eventually leaders have to stand up and do what they believe is best for
their company first, for their customers second, and for the industry
last.” I hope they will take an action about this matter, it’s been years and still our industry is suffering about this problem.
Anonymous

I Googled escrow accounts with HECMs and ran across this reference in a HUD handbook: 4330, 13-12 (a-1): 1.The mortgagee will not maintain an escrow account.

Looks like a change to the HECM program would be needed to allow for this type of option.
Anonymous

The reverse mortgage industry is following in the footsteps of our forward mortgage brethren. Most FHA forward mortgage lenders have separate underwriting guidelines and overlays. The lending criteria can vary significantly between lenders. The reverse mortgage industry already faces a creditability issue. If each lender develops their own set of rules for the financial assessment it has the potential to destroy years of hard work developing the trust of seniors and educating lawmakers. The financial assessment needs to be consistent industry wide. There are enough myths and misconceptions surrounding the reverse mortgage. We don’t need to give the naysayers and Capital Hill any additional reasons to portray our industry in a negative light.
The_Critic

So what is your suggested solution? How can lenders protect themselves from future losses until the time HUD issues its guidelines?
The_Critic

Like the prior two replies, I join in to wonder why you so strongly advocate something which is against HUD policy. This is not like you.
Anonymous

To maintain the status quo until HUD issues their guide lines and provides lender updates to any underwriting changes that have been implemented. Let me provide a recent example of underwriting uncertainty I encountered

I had a reverse mortgage denied the day of the closing when the lender pulled the loan for a quality review. I was given a clear to close the previous day and told an inner city pastor his home was saved from foreclosure. Two hours prior to closing I had to inform the pastor the loan was denied. That was a tough call to make. Over the past three years I had closed loans with similar criteria and greater exposure to the lender that denied this loan. .

By allowing lenders to create their own guidelines for the financial assessment it opens an underwriting Pandora’s Box where loans can be denied for any reason. Forward mortgage lenders have taken existing HUD guidelines and added their own more stringent underwriting overlays. What you have is the wild west of underwriting standards. Advocacy groups and the FHA have criticized lenders for these actions. We have enough image problems. This is a path the reverse mortgage industry does not need to go down
.
If the reverse mortgage industry adopts the Wild West underwriting standards of our brethren the industry as a whole will suffer not just a few individual lenders or loan officers…
The_Critic

Greg,

This getting so small, I answer you below.
The_Critic

Greg,

Your facts are wrong.

Lenders have always had the right to create their financial assessment underwriting standards. No lender knew that until HUD confirmed it last year. Without that confirmation no one dared adopt and perform it.

I am sure the lender is regretting the other loans you closed which were similar or worse than the pastor’s. It is sad the church did not support him enough so that he could qualify for a reverse mortgage. What does it matter if he was a pastor or the local bookie? This is a mortgage not a community service award.

All this worry about differences in administrating the program exists and always has. Some lenders will do manufactured homes; others will not. Some will do 99 year leases; others will not. Some look intensely at appraisals; others are less stringent. And on and on it goes. Once the industry moved away from Fannie Mae, financial assessment underwriting should have gone into full effect. Lenders are slow to change and they will be paying the price in the not too distant future; it will not be pleasant as they begin absorbing default losses.

MetLife, well, is MetLife. They went over the top trying to force the whole industry along. Wells Fargo could have pulled that off but not MetLife. Wells would have probably done it in coordination with Bank of America.

Approval standard differences are nothing new. It is just new in the financial assessment area. We need HUD to issue its mandate so that lenders have better guidelines than MetLife or nothing (oops, I mean MetLife).
John A. Smaldone

Cynic,What state law or regulation say’s an escrow account can’t be implemented and used on a reverse mortgage?

Escrow accounts have been in existence for years with FHA loans, conventional loans, sub-prime loans ETC.If an Urban Financial Group wants to know if they can establish escrow accounts for a reverse mortgage, then all they have to do is call HUD/FHA!Some company needs to take the initiative and ask!Thanks,John A. Smaldone
John A. Smaldone

Critic,I am confused on this one. What is that Jim and I said so aginst in HUD’S policy? Help us out here and let us know. I appreciate,

John Smaldone
Anonymous

John,

If you are referring to me in your response, I apologize if I was vague or misled you. I oppose the use of all escrow accounts and all attempts at getting seniors to pay monthly impound payments toward property taxes, insurance, or any other type of property charge.

HUD will not permit it.
John A. Smaldone

Jim,

Thanks for the reply. I was not aware that HUD did not permit escrows. Why would they disallow that, where is the common sense behind it Jim?Cynic, my apologies to you. As I have always said, I am smart enough to know that I am not smart enough!Have a great day!John A. Smaldone
John A. Smaldone

Cynic,

I sent this to Jim veale and felt I needed to copy you on it.

Jim,

Thanks for the reply. I was not aware that HUD did not permit escrows. Why would they disallow that, where is the common sense behind it Jim?Cynic, my apologies to you. As I have always said, I am smart enough to know that I am not smart enough!Have a great day!John A. Smaldone
John A. Smaldone

Sorry about that, yes, it was James Veale that I was reffering to. I call him Jim.

John Smaldone

Urban Seeks Feedback on Proposed Reverse Mortgage Financial Assessment Guidelines

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