Correction: MetLife Leads the Reverse Mortgage Underwriting Charge, Will Other Lenders Follow?

Now that MetLife has announced underwriting changes to reflect the Federal Housing Administration’s confirmation that lenders are allowed to perform a financial assessment of reverse mortgage borrowers to prevent defaults, the question remains: Will other lenders follow?

Most other top-10 lenders say yes, there is some form of change in the works. Exactly how the changes will play out, however, remains to be seen.

Generation Mortgage plans to implement the new guidance “more or less now,” Chairman and CEO Jeff Lewis told RMD in an email prior to the MetLife announcement. Generation, which operates wholesale and correspondent channels, says it will direct its broker partners on the underwriting with the company’s specifications.

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“We underwrite brokered loans so it is our decision how to underwrite them,” Lewis said. “When we purchase closed loans, they are underwritten by the seller. We will need to insure that those are underwritten consistent with our policies.”

The National Reverse Mortgage Lenders Assoication released suggested guidelines during its annual conference in Boston last month, giving some lenders an advised framework from which to establish their own standards.

“We’ve been discussing procedures with our industry partners so we can have a common approach,” Bill Trask, Executive Vice President and General Counsel for Security One Lending, told RMD in an email. “In part, we were waiting for NRMLA to issue its guidance. We’ll give our brokers as much information as we can so they have accurate expectations of how we will underwrite.”

Trask says that even though Security One will have underwriting guidelines, there may be instances of case-to-case evaluation of the borrowers’ capacity and willingness to keep their taxes and insurance current.

During the NRMLA conference in Boston last month, representatives from the Department of Housing and Urban Development said it will release its own guidance in the future. The agency is required to go through the rule making process, which HUD officials said will not be short.

Lenders, too, may take weeks or months to update their processes and release their own guidance.

“We are currently developing our limited underwriting policies and procedures, evaluating consumer education and marketing materials, designing systems changes, and developing internal and external training programs,” said Pete Engelken, president of Genworth Financial Home Equity Access, in an email to RMD. “We plan to implement our new underwriting policies as soon as we are operationally ready.”*

The immediate impact of different lenders having different timetables and approaches to the new guidance is unknown, but brokers say it will certainly impact their business.

One broker told RMD the discrepancies would have a definite bearing on the market for brokered loans, and could possibly lead to an advantage for third-party originators in the business.

*Correction: A previous version of this article stated in error that GFHEA’s underwriting guidelines were forthcoming in January. In fact, GFHEA has not announced a date for implementation of its new policies. RMD regrets the error. 

Written by Elizabeth Ecker

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  • It would seem those with the greatest advantage would be the retail originators of the most lenient of the lenders.

    We have been constantly told over the last five years that technical defaults were the dirty little family secret in the reverse mortgage industry and yet for a decade they have been a topic of discussion between NRMLA and HUD.

    So why is it going to take a long time for a Mortgagee Letter to be published?  We have had fixed rate products for the last three years plus.  So where is the problem?  Within months of passage HUD had its first Mortgagee Letters (“ML”) regarding HERA.  Its ML on cross-selling is and remains vague allowing room for lenders to create their own firewalls.  Its ML on the purchase program was detailed but had to be revised.

    So why not get a ML out soon and revise it later?  Like the cross-selling ML it could have parts which allow for a wide range of interpretation and others which have very strict rules.

    The ML does not have to be perfect, it just needs to allow for modifications and then after seeing how the industry handles that ML, issue a subsequent ML correcting some of the exceeses HUD found in lender practice.

  • Other lenders of course will have to follow or be left out of the secondary market.  To what extent they follow is another story altogether.  Although MetLife’s underwriting guidelines do seem excessive, they, too, will be considered on a case by case basis.  Borrowers may fall short on one part of the assessment but excel on the others and be approved.  MetLife originators have been assured that nothing is set in stone.  We have been told this is a very fluid process and open to changes along the way.  We can only hope.

    • TheGypsyGirl,

      How is this a secondary market issue?  The contingency is first a Ginnie Mae issue, which in turn it places on the issuer, which it in turn places on the lender, and down and down it goes.  The investor is guaranteed against loss on this issue by HUD through its agency Ginnie Mae.  So please describe how this is of concern to the secondary market?

  • More uncertainty in the marketplace.  Met’s guidelines will reduce volume significantly, there is certainty in that.  Brokers will definitely have an advantage in fitting borrowers into those lender guidelines that fit until guidelines become similar between lenders, but it won’t be easy navigating.

    • Mr. Jackson,

      What is also evident is the long-term business plan of MetLife.  It is different than my firm. 

      HECMs are an insignificant part of the MetLife business enterprise.  They are not at Security One.

      Some have accused MetLife of cherry picking.  If they have the luxury to cherry pick, why not?  MetLife should do what is best for MetLife and its shareholders.  Some of us cannot afford to be as choosy.

      Many of us will be happy to take much of the gleanings MetLife leaves behind.

      However, it seems the current MetLife position is a transition until we have HUD rules granting limited HECM modifications.  It would seem at that point there will be far fewer differences in lender financial assessment underwriting standards.

  • I agree that Met’s guidelines will reduce volume signficantly, but according to some insiders that is exactly what they are trying to accomplish. Much lower volume, but very high quality loans.

      • I’m not oldreverseguy, but my response would be that they might lose a very significant percent of their wholesale business and their retail staff.  How do you present this move to your sales staff in a positive way?  

      • Mr. Neumeyer,

        Working at a Fortune 50 company whose principal business activity is insurance is much, much different than being an officer of a lender whose most significant business segment is reverse mortgages.

        Unlike senior management at my firm, not only does Mr. Craig Corn account to the senior management of the company as a whole but he is still connected to a bank which is up for sale.  The CEO of MetLife probably woke up this morning as concerned about HECM financial assessment underwriting as he is about who will represent Laos in the 2018 Winter Olympics as lugers.  I am sure one of the first things the CEO at Security One heard about this morning is the financial assessment underwriting issue.

        The CEO at Metlife Bank probably woke up this morning less concerned about HECMs period than finding out if anyone had been inquiring overnight about buying MetLife Bank.

        These things are important to us but not to MetLife.  In all of this turmoil, no doubt the management at the MetLife reverse mortgage division is working frantically to insure their employees are not leaving but their recent announcement is just the latest such concern.  You should be presenting your questions to them.    

    • Reminds me of my days as a broker in Forward, brokering to Provident Funding.  .  It was a love-hate relationship.  Love their yield spread premium but HATE their underwriting….. condions that would make you pull out your hair.  We would send all of our squeeky clean loans to them and the other 80% elsewhere.  Exactly their plan.  It was difficult getting signed up with them and staying approved because they were so very picky.  Their pools comanded a higher premium in secondary, but that was Fannie/Freddie (past tense for me intended). To James Veale’s point, I would think that for MetLife’s A+ paper there would be an insignificant price differential in the market, if any, due to the gov’t insurance.  There is some reason MetLife may think otherwise……..  There is more to all of this than meets the eye.

  • The reverse mortgage was specifically designed to help seniors facing financial challenges including foreclosure and bankruptcy. The no-income and only-limited-credit check features are among the best selling points of a reverse mortgage for both the house rich, cash poor and the not so poor seniors. Seniors feel comfortable with the easy procedures associated with the reverse mortgage. The program has been overregulated enoughas is, but seniors are still okay with the way it works…until now.
    With the way things are going reverse mortgages will be for the rich seniors who want to use it for planning purposes, and out with the poor seniors. So what if they are in foreclosure and end up on the street? So what if they have no money to put food on the table? Compasion is being replaced with greed.
    The answer to the T&I problem is not more regulations.The answer is more education. In addition to annually certifying primary residency seniors can be required to certify that they have met their responsibilities. Let us not stop caring about our seniors.  

    • I agree with Mr. Makhlouf.  I would add that if the issue is the future payment of taxes and insurance the simple answer is to go hold back funds similar to the previous set aside so the lender can keep two years of taxes and insurance.  If the customer cannot pay future taxes/insurance costs then the lender would have the money to pay the first year to protect the customer giving the customer time to make adjustments and the lender has the money in the second year to pay the taxes and insurance to protect themselves.  Much easier than the complex financial review being talked about and everyone is on the level playing field.

      • Richard,

        How does that work without HUD approval?  If you are talking about “voluntary” set asides, then how does a lender stop a borrower from taking the “voluntary” set aside the day following funding?

        A two year set aside does not help with the secondary market.  Based on your idea will work for lenders which can afford to hold the HECM in a mortgage portfolio or those who have a low percentage as determined by a relevant MD specialist of surviving two years.

        Lenders need the right to be able to modify the HECM in a reasonable manner when an applicant has clear signs of probable default.

    • Fred,

      HECMs were not designed to do the things you declare.  It was designed to give seniors as much principal limit as possible at a reasonable interest rate, period.  There have NEVER been any special rules for those in foreclosure, without food on their table, etc.  If the case you make were true, we would have one set of PLFs for the financially destitute and another for others.

      The fact is Fannie Mae greatly helped lenders by not requiring any guarantees for defaults for non- payments of taxes and insurance.  When their margin requirements chased the market away, we entered into a new world without a security blanket.

      The current technical default rate is below 10%.  Even a significant minority of other 90 plus percent has NEVER consisted of the financially wealthy.  In looking at Saver borrower demographics, one would never conclude they were wealthy seniors just a little more affluent than the average Standard borrower.

      Yeah, yeah, MetLife this and that but MetLife has always had a specific business plan which they could not implement until now.  Good for them; at least they have found a way to stay in the market.

      If you have those feelings and work at MetLife, the answer is simple:  Go to a different employer.  If you work for a broker who has no other lender, again leave. 

      The handwriting has been on the wall for three years.  I just hope HUD acts quickly to get the industry a workable financial assessment underwrite which will allow more prospects to qualify.

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