The Role of Jumbo Reverse Mortgages in the Market

What role will the jumbo reverse mortgage play in the marketplace today?

Jeff Lewis, chairman of Generation Mortgage, told the Boston Globe it not only meets the needs of borrowers with higher home values, but will also serve aging boomers who are still raising children and helping to support their own parents.  Describing an experience at a conference he attended, Lewis asked if they or their parents had a reverse mortgage.

“No hands went up. When they were asked how many were writing a check every month to help their folks, more than half the people in the room raised their hands. For most of their parents, a reverse mortgage would make sense.”

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Generation is the first lender to release a jumbo reverse mortgage market since the financial meltdown and closed its first loan in August.  It’s the first reverse mortgage product that requires a minimum FICO score of 700, why?

Investors want to ensure that borrowers have the ability to maintain the property and pay taxes and insurance.

“The owners are obliged to keep up the property like the other properties in the neighborhood. Since there is no mortgage insurance to protect the lender, the lender wants some assurance that the owner will continue to maintain the property when there is a potential for a negative adjustment (value decreases).”

A jumbo mortgage that works in reverse

 

 

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  • I highly commend Generation for taking a “first step” in looking proactively BEFORE closing at whether a borrower can honor their ongoing obligations to pay their taxes and insurance.

    A FICO score is a quick and dirty way to get some assurance, but a FICO score does not necessarily tell the whole story.

    I believe that some sort of a financial assessment (particularly for the HECM program) – even a high level one – will soon become a normal part of the origination process. While another hurdle to overcome, it is a necessary process to be deployed to insure the long term sustainability of our industry.

    • ReverseGuy,
      What value is a FICO score in evaluating the credit of individual who is 75 and only used cash or checks for over 10 years and yet that person has a flawless payment record? While FICO scores are meaningful when looking at the financial situation of those between 25 and the late fifties, the value of FICO scores in credit analysis should mean very little after 65.

    • That financial assessment tool already exists, at least for HECM counselors under the new HECM protocols. It is the NCOA-developed, HUD-mandated Financial Interview Tool or FIT.

      FIT evaluates a senior’s ability to stay at home over time and benefit from the reverse mortgage. It is a holistic (or whole-person) approach to reverse mortgage counseling that lenders will do well to emulate. That is the goal of my ongoing series “FIT for Reverse Mortgage Lenders” at http://www.thinkreverse.com.

      While commendable, the FICO score requirement is one-dimensional; as The Cynic points out below, its value in assessing TIM (tax, insurance, maintenanc) default risks for reverse mortgage customers is dubious at best.

      FICO reassures investors because that is what they know from their forward mortgage experience. There are what I call life-stage risks unique to reverse mortgage customers that negate FICO’s value as an assessment tool.

      • Atare,

        IF (and I mean IF) FIT and BCU are a meaningful means of evaluating the ability of seniors to meet HECM financial requirements, then it seems the wrong party in the origination process is gathering that information and evaluating it. Why should counselors do this work? On the forward side, this is the job of the originator. Why should it be different on the reverse side side? After all it is the lenders who make the credit decision, not counselors.

        If counseling needs this information to counsel borrowers then why not have the counselor get the information from the lender? Since this information is vocally transmitted, some nuances are transmitted in the taking of that information which could be important in the credit decision. Counselors could use the completed information to start their right sided brain inquiry; it would save them time and would give an overview at the very beginning from which they can be even more holistic. It would save consumers time and costs. Lenders would be able to do their own credit analysis with information to which all parties have access. Seniors would not be troubled twice to gather the same information.

        Despite all we have heard about left sided and right sided brain issues, FIT and BCU are all geared to conclude on a left sided brain basis — flags, numbers of flags, yes and no questions, multiple choice answers, financial information, etc. It is the 10 questions about reverse mortgages which require a right sided brain approach; it is not an objective “exam”, it is entirely subjective.

  • I’ve provided lots of quotes to homeowners seeking a Jumbo solution, and to my surprise, most aren’t impacted by the FICO requirement. However, approximately 25% are impacted. Most had a wonderful FICO score 2-3 months ago, and were talking about getting a Jumbo Reverse Mortgage, but waited until they missed a house payment before deciding it’s time to move forward. Unfortunately, a single missed house payment results in a significant FICO reduction, making them ineligible for the program. I have a special pile for those homeowners, and they’re all waiting for the next Jumbo program to be released.

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