Staying current on reverse mortgages and issues impacting the industry

Industry professionals meeting in California last week at the National Reverse Mortgage Lenders Association’s “Road Show” considered issues ranging from “How to Grow Your Business in a Sluggish Economy” and “New RESPA Rules” to “The Future of the Wholesale/Broker Relationship” and “Ethical Pricing.” Beyond such periodic discussions, the daily challenge for practitioners in the field is how to keep reverse mortgage recipients current on the multiple expenses that accompany their loans.

Far from an obligation-free transaction, reverse mortgages require seniors to make timely payments for property taxes, hazard insurance and repair costs, the last overseen by HUD as part of the HECM program. On-scene professionals say keeping up with such costs has grown more difficult for seniors as their property valuations and investment portfolios have shrunk and insurance fees have risen, especially in many of the traditional retirement locales, often situated in areas subject to hurricanes, fires, flooding and other weather extremes.

“The reverse mortgage senior is facing high property insurance [charges] and taxes,” says one servicer. “A lot of people no longer have the money for T&I [taxes and insurance]. That’s a challenge for us in the reverse space [because] we have to work with borrowers on repayment plans; most of us have had to develop ‘mini loss mit units’ to put customers on payment plans.”

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Predicting servicer losses of all kinds, including those resulting from T&I defaults, will depend on good data. About that, Michael McCully, partner, New View Advisors, says that “one of the big topics in the industry today is T&I defaults and understanding with some transparency what that data looks like. The inquiry must focus on: ‘How does an industry price a product?” He explained that “without access to historical data on the cost of servicing defaulted loans, establishing reserves for those future losses is difficult. As a result, issuers and investors must make conservative assumptions to compensate [thus] hurting pricing.”

According to McCully, “the same logic extends to prepayments’. We’re working on prepayment data…to allow investors to understand how to project future prepayment speeds on reverse mortgages. Without historical data, investors make conservative assumptions, further hurting pricing.”

Such nagging financial issues will continue to be critical topics of discussion, during and after industry gatherings.

Written by Neil Morse

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  • I can't believe what we heard about FIT at the roadshow. Do you know one of the speakers said that if the seniors were not willing to divulge their financial situation (good or bad) they wouldn't get a counseling certificate? Are we turning non profit counselors into financial planners without the “certification”?

    • How else can we know if they can pay their T&I if they won't tell us at least generally what their situation is? It's all about liability, the agency's, yours as LO, and the lender.

      • Well oldguy49, (and I don't consider 49 old LOL) my understanding is that FIT is more specific than general. Perhaps, by the liability standard you offer we should make financial fitness as much a requirement of the reverse mortgage loan as it is on the forward side. Should we stop and consider why Congress legislated that reverse mortgages could be offered that were insured by FHA and overseen by HUD? Was it because the senior population on fixed incomes had no way to access the equity in their biggest asset, their home, without making payments on loans they increasingly could not qualify for or make payments on? Most seniors (as you know, they receive stacks of reverse mortgage ads in the mail) know a reverse mortgage is not based on their income but on the equity in their homes. So do we delegate the standards of senior financial fitness for a reverse mortgage to counseling protocols and responses of otherwise qualified seniors toward non-profit counselors who have nothing to do with the lender or the loan? Are we giving those counselors the responsibility (while they acquire sensitive and personal information which we will be forced to take at face value) as to whether those seniors can get a reverse mortgage based on how well they present their financial situation, or even if they want to open up their financial situation? Will this protocol become a stringent required testing of borrower qualifications by an outside party who has no responsibility for the loan or the lender? This is a slippery slope. Will the protocol next be asking seniors for three years of tax returns and financial statements when some of them haven't earned enough to file a tax return in three or more years? My feelings about FIT? Dubious at best.

      • The counselors and ourselves have to be able to say yes when we ask “Is it appropriate for this homeowner to do a reverse?” If we know upfront that they aren't able to pay T&I after 6 months (or whatever) then it's not appropriate. That's why the escrowing of T&I is under discussion.

        In order for the insurance fund to get healthier, risk must go down or fees up, or both.

      • Maybe I didn't make my point clear. Who should be the one gathering sensitive information — the one who is responsible for the loan, whose NMLS number is attached to it for all time and for whom misuse of the information has legal consequences — or a non-profit counselor who is not held to the same standard? And if we are going to gather sensitive information, then we should make that an integral part of the loan process as it is in the forward mortgage arena. Do I agree with that? No. Do I think it's better than the alternative? Well I don't know. But if someone HAS to do it, and we have to RELY on the information, wouldn't it be more prudent of us to want to be the ones who take down the information to begin with?

      • FIT will lenders manage front-end HECM risks. It is a tool for a deeper conversation with the prospect. Smart lenders will embrace it.

      • I don't totally disagree with you. I just wonder how many lawsuits will result from the relying of LOs on FIT info they did not gather themselves. And because our NMLS identifiers will be on those loans, any blame for the inaccuracies will attach to us. And I am not a trained financial advisor any more than a counselor is. We all know computer generated forms can only capture so much information and sometimes the capture is only as good as the person inputting it is saavy. That is why attorneys still make money doing wills and trusts and that is why CPAs still prepare tax returns. But if we, as LOs, bear the responsibility for the loan, and HUD and the lenders are going to require the information anyway, just add FIT to the requirements of the loan and have the loan officers provide it. It won't be the same loan as in the past, but that landscape has already changed with the new counseling protocol.

      • Information gathering for legitimate HECM lending should not result in litigation. Not gathering and not verifying enough information, thereby making poor HECM lending decisions that hurt borrowers and lenders, is the source of potential lawsuits.

        As LOs and their lenders learn more about FIT, they will embrace it as a front-end risk-management tool to manage litigation, reputation, and financial risks.

        Since reverse mortgages are financial products and you are, I assume, a reverse mortgage specialist, your disclaimer that you are not a “trained financial advisor” is amusing. You are a trained financial advisor specializing in reverse mortgages.

        HECM counseling and HECM counselors are part of the legal framework for HECM lending. The HECM counseling process is the first line of defense for borrower and lender. As loan officer, a critical part of your job is to gather detailed and accurate prospect information to help your underwriter make a better lending decision. The FIT innovation gives you and other HECM LOs additional tools for better prospect assessment.

      • First of all, if there are to be lawsuits, I would rather have information I can personally vouch for in the file rather than information taken from a third party who has no liability for the problems incurred with the loan.

        Secondly, after taking the NMLS licensing coursework, exam and sitting through NRMLA meetings with head regulators over HECMs from numerous agencies, I do not find anything to do with the term trained financial advisor amusing. I find it frightening. I do not have the certified credentials to make me a financial advisor. I am a salesperson who offers a loan product to qualified borrowers. If gathering financial information is part of that qualifying process, then should not that fact be an integral part of the product and shouldn't all advertising of HECM loans include that fact? Isn't THAT where we are headed anyway? And that is why I called it a slippery slope.

      • There are three parties to the HECM loan: Borrower, lender, and HUD. As product designer, owner, and insurer, HUD has ultimate liability for the HECM loan, not the lender you work for. HECM counselors work for HUD, and they are required to support the borrower throughout the process. Please make peace with this fact.

        Your new license and your fresh encounter with some regulators may have raised your anxiety about your personal liability. Understand that regulators are still learning about HECM and reverse mortgages, like the rest of us.

        I take it you are new to the business. If that is the case, seeing yourself more as an advisor or a consultant (rather than a salesperson) will serve your customers and you well in the long run.

        I have enjoyed and learned from our comments here. You obviously care about what you do, and our industry is better because of professionals like you.

        Thanks,

        Atare

      • Actually, I have been in the business for over 5 years. I am not a newbie and have dealt with seniors in difficult situations over the years. I know what slim lines there are for them and surviving with or without dignity. When I began, counselors were mainly there to make sure that the senior was competent to make the loan, that the senior knew that they were getting a negative am loan on their home, and hopefully to insure that the seniors were not getting ripped off by salesmen selling products in conjunction with the reverse mortgage. They weren't there as financial gatekeepers.

        By all industry standards, financial gatekeeping should fall to the lender. HUD does not have to accept the loans the lender makes if they do not meet HUD guidelines. All I am saying is if HUD is requiring this financial information as part of the loan, it should be part of the loan, not part of the counseling protocol and it should be kept, as is all sensitive borrower information, in the hands of the government regulated lender, not an non-profit organization.

      • Atare,

        The protocol specifically states that the information gathered is not verified. Saying that process verifies anything is very leading.

      • Atare,

        Obviously the following is an incomplete sentence: “FIT will lenders manage front-end HECM risks.” Rather than attempting to put words in your mouth can you redo it? While you are at it, please explain how FIT helps lenders manage anything.

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