MetLife Makes History, Implements Financial Assessment for Reverse Mortgages

MetLife Inc. (NYSE: MET) has announced to its retail and wholesale origination channels that it will require a financial assessment of all of its reverse mortgage borrowers beginning on November 14.

The announcement comes following underwriting guidance published by the National Reverse Mortgage Lenders Association last week that aims to assist lenders in assessing whether reverse mortgage borrowers are able and willing to pay the taxes and insurance on their loans. On the forefront of an industry push to assess borrowers in advance of Federal Housing Administration guidance that officially specifies how lenders should underwrite, it is a first in terms of requiring this kind of credit history or a detailed assessment of cash flow to qualify borrowers, and it will rule out some borrowers who were previously able to get a HECM loan.

“When we think about financial assessment we think about it in the context of responsible lending,” said Craig Corn, vice president of MetLife and head of its reverse mortgage division. “It is ensuring applicants can responsibly meet the obligations of the HECM loan, but also that they can responsibly age in place and meet the essential expenses of living. That was the spirit of financial assessment to us. If we determine after analysis that someone has $100 a month left over, maybe a HECM is not the right thing for this individual. Maybe we should look at other options.”

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While FHA has not made an official rule on the issue, Acting Commissioner Carol Galante issued a statement in October to the effect that there is nothing stopping lenders from conducting such an assessment.

“That was important to us and should be important to the industry, the position FHA has taken,” Corn said.

The MetLife assessment focuses on three criteria including residual cash flow, credit history and principal limit usage (PLU), all in an effort to determine the borrower’s willingness and ability to meet ongoing loan obligations after closing on their reverse mortgage, MetLife said in an email distributed to its originators.

For residual cash flow, borrowers will document the past two years of income through tax statements and will be subject to a regional minimum set by the Veterans Affairs tables, determined by income and obligations.

Under credit history, MetLife will look at whether the borrower’s existing mortgage is current and will see that the borrower has not made any late mortgage payment beyond 30 days in the last 24 months. Additional assessment applies if there is a history of bankruptcy, foreclosure or outstanding judgements and tax liens.

Finally, the principal limit usage will be determined based on a borrower’s outstanding mortgage balance, debts and repairs. In order for the borrower to qualify, the PLU must be less than or equal to 75% for a HECM Standard (and less than or equal to 90% for a HECM Saver).

If the requirements are not met, the originator may consider “compensating factors” in order to qualify the borrower. If an applicant is particularly strong on one point of the assessment, for example, it could make up for weakness in another area, Corn said. The decision will come down to the underwriting. Some may not qualify.

“It’s an unfortunate element,” Corn said. “Some people just may not qualify. But if it ensures the program is outstanding for many years to come then I think we’ve done a really good thing.”

The implementation, which will begin on November 14, will require some adjustments, both for MetLife and those in the industry who originate for the company, Corn said.

“MetLife has added additional resources to handle what will be a lot of questions. People will get used to it, like anything,” he said.

Being on the forefront of the process, the company expects necessary adjustments as the HECM program changes, and says it has worked closely with other industry players including FHA to develop the assessment.

“Our hope is that the industry converges around something that looks similar,” Corn said.

Written by Elizabeth Ecker