The National Reverse Mortgage Lenders Association talked with industry executives via conference call Wednesday to address the need to implement a financial assessment for reverse mortgage borrowers.
During the call, NRMLA executives and industry participants came to a consensus that the association will spearhead the effort in advance of official guidance from the Department of Housing and Urban Development.
“There was general agreement that this type of action works best if it is handled uniformly across the industry and to facilitate that, NRMLA should develop best practices for financial assessment that could be adopted by industry participants,” Peter Bell, NRMLA president and CEO told RMD in an email. “We hope companies will follow whatever best practices we put out.”
Bell said the best practices will essentially track the recommendations that NRMLA submitted recently to HUD on a financial assessment. HUD has told RMD it is in the process of developing a financial assessment to be implemented by HECM lenders. But because it could take several months and the need for such guidelines is immediate, it was decided that NRMLA should develop best practices as expeditiously as possible, according to Bell.
“We are expecting to complete our work in a matter of weeks, not months,” he said.
In addition to the financial assessment issue, NRMLA and the industry representatives on the conference call also discussed the broader political environment and its potential impact on FHA and the HECM program.
The financial assesment issue is critical to ensure the program operates on a sound financial basis considering the current political climate in Washington, D.C.
“The industry is in a critical stage and discipline is required to make sure that the loans we originate are sound ones,” he said.
When Wells Fargo announced in June it would no longer originate reverse mortgage loans, tax and insurance defaults came to light as one of the main reasons for its exit from the business, despite HUD’s commitment to developing a financial assessment that would aim to prevent such defaults. Many lenders have expressed support of such an assessment and have said they are already taking some measures toward that end.
Bell also noted analysis by some lenders discussed on the call that showed borrowers who took large initial draws to pay off mortgages in which there were arrears, back taxes and other consumer debts were among the most likely to have a technical default. That analysis, he said, further indicated the need for a financial assessment and possible limitation on payment options for such borrowers.
Written by Elizabeth Ecker