Lenders Agree: HECM Financial Assessment Is a Good Investment

Upon the announcement by the National Reverse Mortgage Lenders Association that the industry association would spearhead an effort toward implementing a financial assessment for HECM borrowers, many lenders are expressing their support of the decision.

The assessment, NRMLA has said, is a step in the right direction in advance of a pending financial assessment from the Department of Housing and Urban Development that is in the works, but could take several more months to develop.

While the response across the industry still seems to be mixed, several large lenders say they are on board including Genworth Financial Home Equity Access, MetLife Home Loans, One Reverse and Generation Mortgage, among others.

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Genworth is participating in the financial assessment best practices industry group, led by NRMLA, and has stated its strong support of the process.

“We believe that it is important for reverse mortgage lenders to work together through our trade association and develop best practices around financial assessment,” said GFHEA President Pete Engelken in an email to RMD. “This proactive and thoughtful approach will help ensure that customers understand their reverse mortgage loan obligations such as keeping their property taxes and homeowner’s insurance current.”

Similarly, MetLife, now poised to become the largest lender in the industry, has stated its approval.

“We have been part of the NRMLA discussions, and plan to continue participating in the discussions as they move forward, believing it to be in the best interests of all parties involved,” a MetLife spokesman told RMD in an email.

The assessment, which NRMLA said will be developed in weeks, not months, has its roots in a proposal NRMLA made to the Federal Housing Administration in July.

Top-10 lender One Reverse has expressed its support, not only of NRMLA, but of the industry and its implementation of such an assessment in general.

“It’s something that the industry realizes they need,” says Gregg Smith, president and chief operating officer of One Reverse. “The industry has acted responsibly multiple times and this is another example of that.”

Smith says that while the industry movement toward an assessment in advance of HUD’s guidance is a good thing, there will be some necessary changes in order to conduct it. But, he says, it isn’t a question of if, it’s a question of when.

“We have to ensure that this program is sustainable and is there for seniors to use,” he said.

Others are seeing it as a necessary investment, as well.

“I think the industry has an opportunity here to implement some change, to be proactive, responsible and make a very significant impact on the tax and insurance problem before HUD has to release any complicated regulations,” says Jeff Lewis, Generation Mortgage Chairman. “I think ideally what we’d see at this point is some clarity on what it is we are permitted to do today.”

While the large lenders have expressed buy-in, some of the smaller reverse mortgage players remain skeptical as to what the assessment will look like and how it will impact volume.

“The whole point of this is to help seniors,” says Alex Farber, senior vice president of Residential Home Funding Corp. “The problem lies in the fact that when you do this financial assessment, combined with the lending limits, you’re going to be limiting the number of people you can help.”

HUD has announced its progress on the development of a HECM financial assessment, but has yet to release any details. Initially, HUD officials said the assessment would be ready by mid-2011, but the department’s latest comment on the time frame indicates it could come toward the end of the year.

The NRMLA initiative is to be out in front of the official HUD guidance, a move which many support.

Even those who have mixed feelings about the assessment acknowledge its goal is good for the industry and even better for public perception of HECM products.

“We’re still going to have foreclosures, it’s inevitable. But there will be less,” says Farber. “I think [the financial assessment] is going to negate/counterbalance the negative publicity of these foreclosures.”

Combating negative publicity may be a mere bonus from the assessment, however.

“If we prevent tax and insurance defaults, it’s a return on our investment,” says Lewis.

Written by Elizabeth Ecker

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  • As a lender, it is important we have a rule in place as soon as reasonably possible.  It is important approved lender executives understand the issues and the reason for the need to have a rule put in place soon.  Do we need absolute industry unity?  Absolutely not!  If there was, FHA should be very concerned.  But as to FHA approved lenders, there should be a strong united front.
     
    There should be far fewer public executive spokespeople among the approved lenders.  Those who are in support should be encouraged to express their support publicly but they should also be reminded to limit their statements to a statement of support.    

    It is angering to read that the proposal is about DTI ratios or income when the proposal is employing the term “cash flow” intentionally rather than the more limiting concept of “income.”  For those who do not recognize the importance of this conceptual difference, please stop declaring your support of the proposal and then go beyond that to neutralize that position by use of wrong terminology.  You may feel you are a great spokesperson but your statements on this issue only neutralize your alleged support.
     
    To be clear, all income should eventually become cash flow (or cash flow equivalent) BUT not all cash flow will EVER become income.  There is a need for some key spokespeople but not everyone is an expert on the subject or the proposal which is perfectly OK.  Please do not try to be what you are not. 

  • As an originator, I strongly support the proposal.  It is very encouraging to see the broad concept of “cash flow” being utilized throughout the proposal.  It is also very good to see that the DSTCF ratio can be projected based on the anticipated monthly debt servicing payouts and monthly cash flow immediately following funding.
     
    A cash flow concept makes for a far more potentially inclusive concept than income.  This means tenure payouts can be included as well as other sources of cash but not income.  So rather than including just taxable pension payouts, both taxable and nontaxable distributions should be included in cash flow.  The same would be true with Social Security.

  • Certainly no surprise here!  I would think the next shoe to drop would be that lenders will institute a charge to the originator for the extra cost of underwriting what now will become a full-doc package. 
     
    The intent of the full doc HECM is to reduce the lenders risk of incurring costs associated with the borrower’s non payment tax and insurance obligations.  If HUD eliminated the lender’s obligation to incur these costs I suspect the lenders would not be moving to a full-doc HECM.   
     
    Perhaps the lenders are placing the cart before the horse.  Why not wait until HUD releases the “complicated regulations” that Jeff Lewis anticipates before determining that a full-doc HECM is less onerous than what HUD may propose?  Perhaps during that time Jeff Lewis could convince HUD to eliminate the lender’s obligation to cure the tax and insurance obligations. 

    If we don’t wait for HUD’s lead the industry will implement self-imposed guidelines to eliminate borrowers that the industry suspects will not meet there obligations.  When lenders place themselves above the law in determining who is and who is not entitled to a loan trouble is sure to follow.  Redlining was based on the same logic.  Lender’s did not want to lend to certain individuals because they thought those individuals would not live up to there obligations. 

    If we don’t wait for HUD’s lead the originators will be able to honestly tell the borrower’s that the lenders, not HUD, declined the loan because the lenders don’t believe you’ll make your tax and insurance payments.  When the borrower asks the originator to take the loan to another lender the originator will be able to honestly tell the borrower that the lenders are acting in concert to deny certain classes of borrowers reverse mortgages even though the borrowers comply with program guidelines.   

    The universal implementation by lenders of self-imposed guidelines created to benefit the lenders by excluding a class of individuals that is not excluded by the program itself is sure to be challenged.  Why not let AARP challenge HUD’s anticipated “complicated regulations” that exclude certain classes of borrowers as opposed to the lenders collectively facing a class action suit for collusion and discriminatory lending?  I would much prefer to say HUD made me do it than admit that lenders colluded to create a self-imposed guideline to exclude a class of borrowers because the lenders new it was in there best interest to do so.             

  • The financial assessment for HECM borrowers should be about the last
    nail in the coffin for originators who are struggling to make ends meet
    and the seniors who truly need a lump sum to save them from
    foreclosure.  Many of our seniors can barely afford the counseling and
    appraisal fees and now they are going to be required to pay up to $500
    for the assessment.  Probably not. Given the rising costs of the HECM
    program and the endless regulations, no wonder BAC and Wells Fargo got
    out.

  • The financial assessment for HECM borrowers should be about the last
    nail in the coffin for originators who are struggling to make ends meet
    and the seniors who truly need a lump sum to save them from
    foreclosure.  Many of our seniors can barely afford the counseling and
    appraisal fees and now they are going to be required to pay up to $500
    for the assessment.  Probably not. Given the rising costs of the HECM
    program and the endless regulations, no wonder BAC and Wells Fargo got
    out.

    • williamst1000,

      There are so many strange ideas in this comment, where does one start?

      You wirte:  “Many of our seniors can barely afford the counseling and appraisal fees and now they are going to be required to pay up to $500 for the assessment.” 

      When is it you are suggesting this will be paid?  You make it like the time of payment is before funding.  Lenders have never been able to collect any money on anything it charges before funding unless it is being charged by a third party such as counseling and appraisal.  So I am lost by the quoted sentence; it is more fear than sense.

      The financial assessment has been to qualify more seniors.  It has always been about qualifying FEWER seniors.  It is exactly because HUD has taken so long to provide that guidelines for that assessment that Mr. Franklin Codel declared Well was leaving the industry.

      You seem to want the reverse mortgage lenders to pay a portion of the costs of allowing seniors who are in foreclosure to live in their homes.  If you can figure out how to make that a profitable transaction for reverse mortgage lenders, please let us all know.

    • williamst1000,

      There are so many strange ideas in this comment, where does one start?

      You wirte:  “Many of our seniors can barely afford the counseling and appraisal fees and now they are going to be required to pay up to $500 for the assessment.” 

      When is it you are suggesting this will be paid?  You make it like the time of payment is before funding.  Lenders have never been able to collect any money on anything it charges before funding unless it is being charged by a third party such as counseling and appraisal.  So I am lost by the quoted sentence; it is more fear than sense.

      The financial assessment has been to qualify more seniors.  It has always been about qualifying FEWER seniors.  It is exactly because HUD has taken so long to provide that guidelines for that assessment that Mr. Franklin Codel declared Well was leaving the industry.

      You seem to want the reverse mortgage lenders to pay a portion of the costs of allowing seniors who are in foreclosure to live in their homes.  If you can figure out how to make that a profitable transaction for reverse mortgage lenders, please let us all know.

  • A town in Illinois is called Effingham, and as a t-shirt I once saw while passing thru that wonderful town said where in the Effingham are we. Well I think we all meaning in this industry are wondering where in the effingham is this all going to lead to. But class action suit sure looks like it has it written all over it, just because someone wants to pass the buck to those who are going to need a HECM the most and will not be able to pass muster to get one. This action alone takes away the total spirt of this program.

    People will be forced to move and go on to public assistance and this by far will cost us tax payers a whole heap more of our hard earned salaries to help those that have been displaced. but that is what they call redistribution of wealth, welcome comrads.

    • hecm4u,

      What does the class action suit have to do with the financial assessment proposal?  One has absolutely nothing to do with the other.

      Comments of this nature clearly shows how lost members of the industry actually are.  If what Wells did is true, then the OIG should move against it as quickly as possible.

      There is no Reverse Integrity in what Wells allegedly did.  It seems like the alleged professionalism at Wells is a facade and little more.  Acting as if Wells had no resposibility to honor its mortgage contract because of ML 2008-38 shows the level of Reverse Integrity the reverse mortgage management at Wells actually lived by.  Not only has the Reverse Integrity at Wells left us with a big eye over the way they left the industry blaming HUD but now it seems they may have left us with a second black eye by their lack of minimum integrity in honoring their mortgage contracts with borrowers or their heirs. 

    • hecm4u,

      What does the class action suit have to do with the financial assessment proposal?  One has absolutely nothing to do with the other.

      Comments of this nature clearly shows how lost members of the industry actually are.  If what Wells did is true, then the OIG should move against it as quickly as possible.

      There is no Reverse Integrity in what Wells allegedly did.  It seems like the alleged professionalism at Wells is a facade and little more.  Acting as if Wells had no resposibility to honor its mortgage contract because of ML 2008-38 shows the level of Reverse Integrity the reverse mortgage management at Wells actually lived by.  Not only has the Reverse Integrity at Wells left us with a big eye over the way they left the industry blaming HUD but now it seems they may have left us with a second black eye by their lack of minimum integrity in honoring their mortgage contracts with borrowers or their heirs. 

  • A town in Illinois is called Effingham, and as a t-shirt I once saw while passing thru that wonderful town said where in the Effingham are we. Well I think we all meaning in this industry are wondering where in the effingham is this all going to lead to. But class action suit sure looks like it has it written all over it, just because someone wants to pass the buck to those who are going to need a HECM the most and will not be able to pass muster to get one. This action alone takes away the total spirt of this program.

    People will be forced to move and go on to public assistance and this by far will cost us tax payers a whole heap more of our hard earned salaries to help those that have been displaced. but that is what they call redistribution of wealth, welcome comrads.

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