Financial Assessment for Reverse Mortgage Borrowers?

“It’s coming,” said Joe Demarkey, Assistant Vice President of Strategic Business Development for MetLife in response to a question about whether the US Department of Housing and Urban Development (HUD) would start requiring lenders perform a credit underwrite for reverse mortgage borrowers.

The first step towards a type of underwrite will be through new HECM counseling protocols which are expected to be released in the near future. Included in the protocols will be a new financial interview tool (FIT) that counselors must utilize to help a prospective borrower asses the financial viability of remaining in their home.

According to a panel at the National Reverse Mortgage Lenders Association (NRMLA) Road Show in Atlanta, the second step will require that lenders conduct a financial assessment of borrowers to ensure they have ability to meet the financial obligations of the HECM. (ie. taxes and insurance). If necessary, the lender may require the borrower to set up an additional set aside to ensure they can meet those obligations.

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Peter Bell, President of NRMLA made it clear to the audience that “this is not a financial underwrite”. Stressing that HUD wants to make sure the HECM isn’t a “stop gap measure” for borrowers and to ensure that it’s a solution that will help them in the long run said Bell.

While no one is sure exactly how many HECMs are currently in default due to failure to pay taxes and insurance, Jeff Lewis, Chairman of Generation Mortgage said, “Solving this issue is a big problem for us to promote the program”.

Later during the conference, Daniel Rogers, Director of HUD’s Atlanta Home Ownership Center said the change is currently in departmental clearance. He added that getting it through clearance can take “months or years”.

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  • Linda,rnrnWhile you have a point, this also shows the senior is not sure about his own financial situation and is merely doing what others tell him. This is strong evidence that customers should be encouraged to have the strongest financial advisor on the phone when counseling is being conducted.rnrnOver the last two years I have dealt with a few seniors who did not need nearly all of the money upfront and found a variable rate product a better bargain even if interest rates capped out at 10% higher than the initial rate sometime down the road. This is all a matter of personal situations.rnrnMy question to you is how does your example relate to the story above? It was on insurance and real estate taxes.

  • One client decided to get a fixed-rate Reverse Mortgage after meeting with his financial advisors and family members. They felt it was the best option, based on his financial situation. After counseling, the client was confused and thought he should reconsider the adjustable rate loan. This is just wrong. Counselors cannot be familiar with a client’s entire financial picture, future needs, spending/saving habits, etc.

  • While this may be a step in mitigating the problem on future HECMs, what does this do to alleviate the current and potential problem in the pool of outstanding HECMs? Here it seems the problem will only continue to grow, if not, perhaps multiply. rnrnAll this announced policy will do is to reduce the number of applicants who for financial reasons might not be able to pay. What incentive or disincentive is there for borrowers to pay real estate taxes and insurance? That is the real point. u201cTechnicalu201d defaults hardly seem worth the effort of discussing. I hope this is addressed at the Policy Conference and So. California Road Show this summer. rnrnTo some it seems there is a potential of disproportionate contribution to the problem from borrowers of closed end HECMs. With no available line of credit to draw down, it would seem these borrowers would only exacerbate the situation. rnrnI wish the high level of effort concentrated on this issue RIGHT NOW were refocused on FY 2011 budget matters. Now is the time to do the pick and shovel work on that front.rn

  • While this may be a step in mitigating the problem on future HECMs, what does this do to alleviate the current and potential problem in the pool of outstanding HECMs? Here it seems the problem will only continue to grow, if not, perhaps multiply.

    All this announced policy will do is to reduce the number of applicants who for financial reasons might not be able to pay. What incentive or disincentive is there for borrowers to pay real estate taxes and insurance? That is the real point. “Technical” defaults hardly seem worth the effort of discussing. I hope this is addressed at the Policy Conference and So. California Road Show this summer.

    To some it seems there is a potential of disproportionate contribution to the problem from borrowers of closed end HECMs. With no available line of credit to draw down, it would seem these borrowers would only exacerbate the situation.

    I wish the high level of effort concentrated on this issue RIGHT NOW were refocused on FY 2011 budget matters. Now is the time to do the pick and shovel work on that front.

  • One client decided to get a fixed-rate Reverse Mortgage after meeting with his financial advisors and family members. They felt it was the best option, based on his financial situation. After counseling, the client was confused and thought he should reconsider the adjustable rate loan. This is just wrong. Counselors cannot be familiar with a client's entire financial picture, future needs, spending/saving habits, etc.

  • Linda,

    While you have a point, this also shows the senior is not sure about his own financial situation and is merely doing what others tell him. This is strong evidence that customers should be encouraged to have the strongest financial advisor on the phone when counseling is being conducted.

    Over the last two years I have dealt with a few seniors who did not need nearly all of the money upfront and found a variable rate product a better bargain even if interest rates capped out at 10% higher than the initial rate sometime down the road. This is all a matter of personal situations.

    My question to you is how does your example relate to the story above? It was on insurance and real estate taxes.

  • Linda,rnrnWhile you have a point, this also shows the senior is not sure about his own financial situation and is merely doing what others tell him. This is strong evidence that customers should be encouraged to have the strongest financial advisor on the phone when counseling is being conducted.rnrnOver the last two years I have dealt with a few seniors who did not need nearly all of the money upfront and found a variable rate product a better bargain even if interest rates capped out at 10% higher than the initial rate sometime down the road. This is all a matter of personal situations.rnrnMy question to you is how does your example relate to the story above? It was on insurance and real estate taxes.

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