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

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  • While I understand the need for the financial assessment to be in place, I hope these requirements don’t become the standard for all lenders. What concerned me the most is the 75% PLU requirement. This will increase the equity requirements for the borrower quite substantially. With appraisals sometimes coming in lower than expected, we could have a situation where we ask our borrowers to pay for HUD counseling and an appraisal only to find that with the 75% PLU requirement they won’t qualify. I have a borrower who is short to close and is planning on bringing money to the closing to make up the difference in order to get rid of their mortgage payment. Are they now going to have to bring in what they are short plus an additional 25% of the PL? What about on a purchase transaction? Are we going to have to show that they have 25% PL in reserves? This would make the purchase loan a much less desirable product. If someone has been making their mortgage payments but would like to take out a reverse mortgage to increase their cash flow, wouldn’t it make sense to allow them to do it so they have a lower payment each month? I thought that was what this product is all about.

    I hope that some common sense adjustments to these requirements are made over time.

    Michael Jones

  • This is insane…..so now a senior who had issues on their mortgage cannot use a product that helps them get out of their house payment. Who thought up these guidelines – Obama?  

    I have helped countless customers who had bad mortgage history (i.e. after losing a spouse) or were literally in foreclosure when we helped save their home with a Reverse. Met Life….you are no better than Wells who pulled out and now 10’s of thousands of customers who need the product will never hear about it at a Wells bank store.This new decision was clearly made by people who do not have a clue and will make UW’s deny loans because these new guidelines are not well thought through.

    Shame on you!

    • Quick comment:  the message above was not written by me, just by someone who took my “pen name”.  However, I would like to respond to Reverse_Guy’s comment:

      How is this “insane”?  That some people may not qualify (just like a forward loan) if they can’t prove that they can pay their ongoing homeowner obligations, like taxes and insurance?

      What’s worse in your eyes, that someone is denied a reverse mortgage (because they have no remaining funds at the end of the month to pay taxes/insurance), or that the same person is given a reverse mortgage – only to be foreclosed and evicted from their home 18 months later for failure to pay their taxes?

      • I did not intend to copy your name….It was honestly a coincidence. Sorry to all…I will change my screen name next time I comment to avoid any confusion.

        I just created an account so I can post a comment. I normally do not post comments anywhere online but this topic was something I needed to respond to.I agree with the assessment of taxes and insurance to an extent (as many seniors have family who help pay these, etc.). If a senior makes $900 month and taxes are $8000 a year in Boston, MA – I agree that a HECM loan should not be made unless able to show family or other resources pay the taxes annually.My biggest concern is now having UW’s look at mortgage history as a deciding factor as to whether or not approve the loan. This scares me as many seniors may now get denied if they are in foreclosure or have been delinquent on their mortgage who would otherwise be able to remain in their home for the rest of their lives. I have done many loans with customers who are or have been delinquent on their mortgage and have done several that have been in varying stages of foreclosure.I have been an executive in both sales and operations (UW) and know that if UW’s have new guidelines and directives in front of them they will rightly stray toward being conservative.  Although well intentioned I believe these guidelines are too broad and will cause many, many customer denials and hurdles than we can imagine.The sad thing is we will not collectively know as an industry how many seniors are being affected.

      • Let’s face it the HECM industry is DEAD!  And Metlife will be out of the Reverse Mortgage space within 6 months.  

      • Really , we are talking in the “hundreds to low thousands of people” that are behind on their taxes. And the program has funded well over a hundred thousand loans Now Lets compare the default rate to Fannie loans, Freddie loans, or any forward FHA loan in the past 10 years…..Now can you say the reverse mortgage has easily the lowest default rate by a landslide.

  • Some statements coming from brokers and originators lately have been astounding, astoundingly wrong.  We should not be attacking lenders for doing what is in their best interests. 

    We should be appealing to NRMLA and FHA to move quickly to the next level of financial assessment underwriting so that the stringent standards lenders are now moving to can be eliminated.   The resulting Mortgagee Letter should allow sensible modifications to HECMs such as mandated set asides of taxes and insurance in a way that the greatest number of applicants who initially present the most substantial initial signs of risk for default due to nonpayment of taxes and insurance can still be approved for a HECM while at the same time providing lenders with the protections they reasonably need.

    Modifications should only be permitted for those applicants presenting clear factors of risk of default for nonpayment of taxes and insurance; declination should be reserved to a measure of last resort.  Although poorly written, the June letter from NRMLA to Ms. Hill was a good start and provides some very good suggestions.  NRMLA should definitely rewrite that letter and address it to both Ms. Galante and Ms. Hill.

    What we all need to realize is that without FHA guidelines what MetLife is instituting will serve as a guideline for most other lenders.  We need the help of FHA more than ever so that the lenders can provide as many HECMs as consumers demand and lender risk reasonably permits.

  • To Michael Jones, the 75% only applies to a standard product.  A borrower would be forced to use a fixed rate product if their plu ratio is greater than 75%.  This is definitely NOT in the borrower’s best imterest. Based on what we’ve seen so far, most borrowers that really NEED this product will be elminated and we will be left with only the borrowers that WANT it.  Sorry seniors, you should have jumped at it when you had the chance.  It’s too late now.

    • Gypsy,

      It’s not a difference between fixed and variable….you need 75% or less PLU for ANY standard product….doesn’t matter the terms of the rate.

      • You’re correct and it is really ridiculous especially here in Florida where the appraisals are so low that we’re lucky to be able to pay off a mortgage without a borrower having to come to the table with money.  To have to use 75% of proceeds will surely eliminate those in need.  Doing a quick review, only 2 out of my last 10 loans would have qualified. 

  • I find it interesting that the same individuals that were part of the mortgage meltdown with Countrywide are now working for MetLife in a leadership capacity. These are the same individuals who have created this financial assessment for the reverse mortgage program and now they want to be the industry leaders. I find it disturbing that this financial assessment has the potential to deny seniors the right to do a reverse mortgage, especially the seniors who need it the most! Although reverse mortgages have evolved and are no longer the mortgage of last resort, for some seniors it is still the last resort! I agree with other RMLO’s and  hope that other lenders do not follow MetLife’s direction with their financial assessments. It is going to damage the reverse mortgage industry.

    • No one has the “right” to do a loan that they cannot or will not keep out of default. You need to rethink your position.By catering to those that are most likely to default, you put the entire industry at risk, which would mean no one gets a reverse. And from a customer perspective, it is irresponsible to originate a loan that will only end up with the senior losing their home anyway. They deserve the truth and guidance to another solution, not a reverse. Many of our customers are in situations that they neither caused or could control, but plenty (like millions of other Americans) did refis in the past that they should have known they could not afford. They signed the docs, they took out the cash, they made the decisions that led to their current problems and they are not “entitled” to a bailout just because they are over 62. I appreciate Metlife having the courage to make these steps to save our industry, and believe me, everyone will eventually do the same or they better have the apetite to hold thier loans, because no investor will touch them.

      • Why will no lender take them?  Are you saying they will go into due and payable quicker?  The number of loans in default are less than 10% and should go down. 

  • Too bad for potential borrowers that listened to AARP and held off applying for a reverse mortgage until they had no other options.  Too late, now they don’t qualify.
    I agree with James Veale.  There are better ways to do this and we need HUD approval to move forward.  Let’s not leave the people that we really helped behind with this change. 

  • I agree that if a senior cannot afford to stay in the home even after a reverse is done…the other…’more difficult’ financial decisions will have to be made. Meaning probably sell the home and move into something affordable.

    What I don’t agree with is MetLife’s assessment and ‘definitions’ of what ‘can’t afford to stay in the home’ means.

    Case in point regarding residual income:

    You read here that MetLife is using the VA tables for residual income. Have you seen the VA Tables for residual income? If your loan is $79,999 or less there is one set of required residual income requirements. If your loan is $80,000 or more then there is another, higher set of residual income requirements.

    Then within each table of residual income requirements there is what is called ‘family size.’ In other words, the smaller your family size the less residual income you are required to have. Of course, the greater the family size the more residual income you are required to have.

    So why is this important? Again because MetLife is using the greater of the $80,000 VA loan table to determine their ‘regionalized’ residual income needs. This higher loan amount table requires the HIGER residual income AND (here’s the killer punch line) they are only using the family size of 2 in order to create their residual income requirement threshold. In other words, it doesn’t matter if there is only one person in the home (single person, deceased spouse, whatever the reason) that single person will be subject to the residual income requirements for a FAMILY SIZE OF 2 according to the VA required residual income.

    Now to add injury to insult….MetLife is requiring ON TOP OF THAT the residual income required from the higher VA table to be GROSSED UP AN ADDITIONAL 20%.

    So, for instance, in my neck of the woods that number would be $886. That means a single woman (or man) who has a meager Social security income would have to show $886 per month left over after all debts, taxes, insurance, association, AND $0.14 per each square foot of living space in her house. Of course you can use any tenure payment from the reverse mortgage as part of the new income, however what about the little old lady whose husband left her with a whopping mortgage? There will be no tenure payment left.

    I’ve done the math and some of my very own SOLID no risk borrowers would be subject to denial based on these guidelines. As for these initial residual income guidelines – I would contend they are little bit on the ‘nutty’ side.

    Quite frankly, using VA residual income tables makes sense as VA loans are touted as having the lowest default ratio. But a reverse borrower and a VA borrower are not the same shape and size. So in my opinion we should not be trying to force a square peg in a round hole.

    I understand using the VA tables as a starting guideline, but then when you look at the borrower profile:

    1. VA borrower has a large mortgage payment, reverse does not.
    2. VA borrower is most likely not retired and still living highly active life, reverse does not.
    3. VA borrower will be spending more money on ‘life’ and reverse will not (statistically speaking).

    Most financial planning states that when you get into your retirement years you only need about 75% of your working life income for some of the reasons stated above. (less active lifestyle, etc.)

    So why on earth make a reverse borrower subject to the higher residual income tables and then only use the family size of 2 when the VA doesn’t even do that? And THEN make the residual income needs even tougher by requiring 20% more than what even VA requires? It really becomes maddening the more you think about it and meditate on it.

    A reverse borrower will have less expenses just due to lifestyle among other things to include no mortgage payment. So it would make sense that you:

    1. Use the lower of the VA residual income tables
    2. Allow for adjustment for family size (1 or 2 just like VA allows)
    3. Gross DOWN the required residual income from the VA tables for Reverse borrowers because they don’t have:
    A. A mortgage payment (!!!)
    B. As great of need for the money due to retired lifestyle.

    In my opinion ths is the greatest of all that may be called follies in the MetLife reverse financial assessment and will substantially, if not completely kill the reverse business if this becomes de facto standard across the industry. This part was clearly not well thought out.

    • Mr. Rosengarden,

      Are you the same person who on Linked In was praising MetLife as an over 100 year company?  Well for one thing MetLife Bank has been around for about a decade.

      To be clear MetLife is acting in its own best interests.  Should they act in a different manner?  As Mr. Jackson implies, MetLife is showing signs of cherry picking.  They showed that propensity when they dropped manufactured homes months ago.

      It is surprising to see you speaking out against the policy of your employer.  You need to speak up inside your company as well, if this is how you really feel.

      • I speak out to anyone and everyone when I see something that doesn’t make sense.  My comments have already reached top of house.

        There is no argument that a company can decide to act in its own best interests.  The argument, however, is I don’t believe the residual income portion of these ‘interests’ was very well thought out.  Once applied to most any ‘solid’ case of credit history, PLU, and income left over enough (residual) to pay for the basics of life – ML’s guidelines on residual income practically knock out almost EVERYONE who has the need for a reverse and can still maintain taxes, insurance, and assessments.

        ML has said many times over that the landscape needs to change to 80% Saver and 20% Standard (which is currently opposite that) and that the clientele landscape of reverse would change.  The indication being towards the ‘affluent’ clientele.  However, if that were the case then no FHA would be needed.  FHA’s stated motto is to ‘serve the under-served.’  Going for people with $1000/month left over after all debts, housing, AND utilities hardly warrants someone who is ‘under-served.’

        MetLife can do what they want to do – but it will be without FHA if this is the route the industry decides to take.  FHA will have no place in that model.  Private insurers can pick up the tab on that one.

      • Mr. Rosengarden,

        I have had a few conversations with national office on Savers.  They are designed to be a real benefit to the more affluent.  And, yes, to some degree the more affluent are underserved. 

        FHA would like significant growth in Saver endorsements.  The ongoing MIP should not be needed for Savers so that it will help the MMI Fund grow; in other words, this a potential profit center for HUD so that it can help the more needy without substantial change to MIP or PLFs.

        Eventually MetLife will balance its apetite for net profit with the need to mitigate contingent liabilities.  We all hope these are transitions rules while HUD is creating a Mortgagee Letter reflecting the spirit of the NRMLA letter to Ms. Hill in June.

        The next few months may be a difficult time for originators when it comes to application declination due to financial assessment underwriting.

  • Financial assessment is an important step in the right direction.  That being said, ML’s guidelines are an enormous step too far from the perspective of many.  It appears that ML may no longer have the appetite for HECMs, or they are looking to cherry pick volume.  They went way beyond “capacity”, which is where I would have thought they would stop.  Hopefully other lenders will stop there, otherwise this industry is in serious trouble. 

    • Mr. Jackson,

      Is there any question that MetLife is cherry picking?  They ran away from manufactured homes and now they are beginning to move away from the financially needy posing risk.  The hand writing was on the wall months ago.
       
      Until there is a code of conduct or legal requirement, MetLife is doing exactly what any responsible corporate entity would do whose principal business activity is not in the reverse mortgage industry.  If Wells had had the right to cherry pick, there is a huge possibility they would still be in our industry.
       
      While I know many may not agree, I believe that change is needed which makes the gleanings more valuable to other lenders.  We need a Mortgagee Letter from HUD which allows modifications to these loans so that risk is minimized.

      • If their intent is simply to cherry pick, they need to remember to pick enough cherries to allow their employees to eat.  These guidelines are too strick for that, their operation will soon be emaciated and on the soup line looking for handouts.

      • It’s a fair question to ask – albeit tongue in cheek. Will this financial assessment restrict a sufficient number of borrowers that MetLife will be forced to do away with some of their own retail staff? In ML’s industry update phone call last week, it was stated that they applied these tests to files internally and 90% of the loan files still passed (it would be interesting to know the parameters of that test segment). From many of the comments made here and statements from other originators in my office, it seems that these assessments would not allow 90% of the files that we see to go on to closing. I agree with your suggestions that our voices ought to be directed toward those institutions that can effect a change toward more realistic financial assesments. MetLife’s upcoming endorsement numbers will certainly serve as evidence for HUD and NRMLA to consider.
        I hope the original intent of this program isn’t lost in “preserving” it. There has to be a more moderate stance that will protect the interest of lenders and still deliver this beneficial product to those would indeed be able to age in place, maintaining their homes, and abiding by their HECM terms but don’t meet enough of these assessments to make this high grade.

      • Mr. Burrows,

        With the four month lag from application to endorsement (or more), the first time that will be seen in the MetLife endorsements numbers for a full month will not be until April 2012. 

        Remember TPO numbers are now part of lender endorsements for purposes of the endorsement report which should be issued between April 30, 2012 and May 3, 2012.  This means in some cases when we use prior year fiscal year numbers for comparison purposes it is like comparing the number of rats to the number of rabbits; they both may be numbers of endorsements but they are also very different.

  • Met Life only wants wealthy borrowers for their investment oportunities, this is the only reason they are keeping the reverse side, they even said this publicly last month in Originators News. 

    It is only a matter of time that borrowers get put into the wrong financial investment from Met and they have major class action law suits on their hands.

  • One of the highest dollar amounts that seniors are being forced to pay is property taxes, which is another way of saying “school taxes”. As a senior, I have no problem with paying HOA fees, since they provide a service, even to a senior that I can take advantage of. County taxes for fire, police and other such services can be utilized by seniors should also be paid. School taxes, which cannot be used by seniors since we no longer can put a child in a school, should be paid by all who are under 65 who can utilize this service. If seniors did not have these taxes to pay, we would have more money left over to pay for necessary items like healthcare insurance,medicine and food.Possibly this is a solution that should be visited to allow seniors who put money into the system while we were employed, to be able to live comfortably on their SS income.

      • What about them!!!! Since they choose to take on the burden to raise their grandchildren—- let them pay school taxes.They are utilizing the benefits of the local school system, I do not. The logic you are using is the same as that everybody should pay for gasoline tax whether they own a car or not, since one time or another they will be utilizing the benefits of being on a public street or highway. I’m sorry for being so blunt, but as a senior who has put into the system for years, when I could have used the benefits, I see no reason to ask ALL seniors to continue to bear this burden. Please explain why seniors should be asked to pay .

      • Sarcasm is really not appreciated— I guess I expected a dialogue regarding a problem that every senior faces not a cute remark.

      • KatyDog,

        How is that sarcasm?  Many seniors move to where things cost less and are more beneficial for them.  I was merely suggesting an answer which hundreds of thousands of seniors have done.

        We do not agree on the response or your proposal.  Again my parents paid real estate taxes as did I despite not using the public grade school system.   We all rent the homes we “own;” it is called property taxes.  How that money is spent is up to the “landlord.”  We, the joint landlords, all have the right to vote.  We are just on opposite sides of the issue. 

        But there are places where there are no property taxes for schools, because there are no schools.  That is clearly one option to your situation and desire. 

        I wish you the best.    

    • KatyDog,
      If you can opt out of property taxes using your argument that much of it goes for schools, can I opt out of paying for Medicare and Social Security (and unemployment, disability, auto insurance, life insurance, etc.) since I’m not collecting on those?

      We all like to make sure we’re spending our money wisely, doubly so with our tax dollars.  But the reality is that society would look very different if we all paid our own way on everything.  Perhaps a case of being careful what you wish for?

      • Payments into the SS and Medicare are federally mandated programs, that you will benefit from as you become of age. While I was working I gladly paid into these programs, since as a senior, I knew we would benefit from it. Property taxes are a state thing and are used for public schools with no benefit to a senior. If you noticed in my previous posts, I had no problem paying these property taxes prior to reaching 65.

    • I can certainly appreciate your desire to make your personal resources go farther – most of us are in a similar boat. My response begins with a question. Do you receive no benefit from living in a community where children are educated? There are indirect benefits that serve the community as a whole. Schools are already underfunded, pushing more of that funding to a smaller set of the populace may cause greater harm to the community than it would benefit those relieved of the tax burden… just my thoughts. As a reverse mortgage professional I am sympathetic to the needs of seniors, but I don’t think this is a viable solution to easing restrictive budgets.

    • Why set the cutoff at 65 for paying for schools? Most people’s children are out of school way before they reach 65 so why should they continue to pay until age 65? What about people who have no children, why should they pay for schools at all since they will never use it? My kids are out of school and I am under 65 and do not like paying for schools either however there are other programs my tax dollars go for that I like even less. Until we can pick and choose where our tax dollars go to I do not see how we can exclude one class of citizens from paying a tax.

    • This is the next part of my personal analysis that I find maddening while meditating on it.

      MetLife has clearly stated that they do not want HUD to take another corrective action in reducing the PLF (Principle Limit Factor) yet AGAIN in order to correct defaults.  So the solutions was to JUMP aboard and put out this Financial Assessment.

      It was my understanding that MetLife wanted to avoid the PLF reduction – but by requiring 75% or less PLU in Standard Loans…yes – this practically creates the same result.

      Granted – you can still cash out 100% of the PL if the property related debt is >75% PLU – but the people who will need the full PL are the ones with the stacked mortgages.  If they have no lates, good income, good debt control otherwise – why bother with PLU?

      To be fair – MetLife is stating that this is a moving target and would rather err on the side of ‘ultra-conservatism’ rather than the opposite.  Because otherwise it would be left up to HUD to take action – and for them – it takes but about all the brainpower they can afford just to decide to cut the PLF vs. any real analysis on what needs to be done.

      So kudos to MetLife for taking action – but shooting at gnats with cannons will do way more damage than it will good.  Hopefully they will get this thing down to the appropriate fly swatter it needs to be…AND VERY SOON!

      • Guest,

        Your remarks about the brainpower at HUD are way over the top and reflect your frustration.  But they are also false and damaging to the industry.

        We all need to take a deep breath and appeal to HUD and NRMLA in emails and letters that lenders need to be allowed to modify HECMs in underwriting as outlined in the poorly written NRMLA letter in June to Ms. Hill.  Despite its flaws that letter had some very good content which needs development and correction by NRMLA but it was a very GOOD start.

        Again the financial asseessment produced by MetLife is in the best interests of its shareholders.  Like Wells and B of A, reverse mortgages are an insignificant part of MetLife operations, period.  For MetLife as a whole this is good, reasonable, and rational policy.

        Other lenders will be happy to pick up the gleanings, MetLife leaves behind as a result of this new MetLife policy.  Will some MetLife retail originators leave MetLife as a result?  Most likely yes but that is what policy changes many times result in.

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