Will changes to the way lenders qualify borrowers for reverse mortgage loans rule out the average borrower of the past?
Many in the industry have responded to recent underwriting changes implemented this week by MetLife that assess a borrower’s ability to meet his or her tax and insurance payments with that concern.
It may be too soon to tell, but there are lots of ideas on exactly how many past borrowers would not qualify under the new guidelines—some say the difference could be very significant, with the concern being that those who need a reverse mortgage most will no longer be able to qualify for one.
“The widow who has $1300 a month in social Security income (the average borrower a few years ago) will no longer be able to get a Reverse Mortgage,” says Jack Belles of Reverse Mortgage of New England.
The changes, which according to MetLife’s guidelines, including an assessment of credit, principal limit use and cash flow, could have a big impact on lenders whose business models are built around helping seniors save their homes from foreclosure. Some have told RMD it could impact upwards of 70% of their business.
Educated guesses on the overall percentage that might not qualify are less than that, but still surpass the percentage of actual defaults that program has seen. The estimates depend largely on the types of borrowers that lenders are marketing to to begin with.
“If people’s business model is to mail [marketing] to people who miss mortgage payments or who are entering foreclosure, then absolutely 70% or 100% wouldn’t qualify,” says John Lunde, co-founder and president of Reverse Market Insight. “That’s probably not unintentional.”
Given the history of defaults in the program over recent years and the nature of the underwriting that MetLife will conduct, Lunde’s guess as to the actual proportion who will be disqualified is in the range of 10% to 30%.
“I think the bigger question is: where does the rest of the industry go?” Lunde says. “Are there Saver borrowers or other segments the industry hasn’t tapped that can create loans and keep the industry growing going forward? The biggest opportunity is those who don’t have a mortgage today. Maybe this is part of the way, not by choice, but to appeal to households that don’t have a mortgage.”
One such organization that could see a major impact is the Foundation for Homeowners, a non-profit organization that works specifically with senior homeowners who are in danger of losing their homes due to tax delinquency, insurance default, or both.
“Most of my clients will not qualify,” said Lolita Stevenson, foundation president, of the MetLife guidelines. The Foundation is still seeking detailed information about how the changes may impact its work with seniors, but Stevenson says she suspects her business will shift toward education.
“We have to educate people a lot more than we have been doing. It will probably reduce the number of people that will be willing to use [a reverse mortgage].”
Some acknowledge that some of those who don’t qualify under MetLife’s new rules shouldn’t have been eligible in the first place.
“I think this will knock a lot of people out of qualifying, but I guess we’ll see as we start working through the numbers with clients and prospects,” says Lance Jackson, president and CEO of Castle Reverse Mortgage. “But maybe a HECM isn’t the best choice for some of them anyway.”
Upon announcing its financial assessment in early November, MetLife acknowledged that some won’t qualify, but that the shift was in the interest of the best loans possible.
“It’s an unfortunate element,” Craig Corn, vice president of MetLife and head of its reverse mortgage division told RMD at the time. “Some people just may not qualify.”
The number remains an unknown, but most agree the impact will be felt by most who work with reverse mortgage borrowers. The National Council on Aging is still in the process of determining the precise impact, but the agency does have some concerns.
“We are still reviewing the new MetLife guidelines, and are not sure how these will actually be implemented in the field,” says Barb Stucki, vice president of Home Equity Initiatives at the National Council on Aging. “As a result, I don’t know what the potential impact might be. We are concerned that people with modest home values who may have some existing debt will not be able to get a reverse mortgage.”
Written by Elizabeth Ecker