Some originators raised questions during an industry webinar last week as to how much qualifying is actually necessary in the process for underwriting reverse mortgage borrowers for property charges. Under guidance from the National Reverse Mortgage Lenders Association regarding the new financial assessment, it’s important to qualify the borrower, but not overcomplicate the process, the association says.
“It’s recommended that you verify only enough [income sources] to qualify,” said Steve Irwin, executive vice president, policy for NRMLA. The association’s committee on financial assessment has been referring to such measurements as “circuit breakers,” he said.
Irwin reiterated NRMLA’s guidance on the capacity and condition tests in an email to RMD.
“The NRMLA Guidance on Limited Underwriting states: ‘The lender should gather only the minimum amount of information necessary and appropriate to perform and document the Capacity Test and the Applicant Condition tests,’” he said.
The qualification process, so far, has added time and steps for MetLife borrowers, working with the one and only lender that has publicly implemented changes based on the recommendation from NRMLA. The company told RMD in November that it had added resources to aid in the process and address questions for originators as they adapt to the new procedures.
Under the NRMLA guidance, which has yet to be formally adopted by other lenders, originators are encouraged to verify a borrower’s income sources to ensure that he or she has the capacity to pay for property charges including tax and insurance.
But what many have called stringent new guidelines shouldn’t rule out borrowers unnecessarily, NRMLA says. The recommendation is to use them as much as needed and not further.
“We don’t want to make this overly complicated or burdensome. Verify enough to qualify and then stop,” Irwin said during the webinar. “…require only the minimum amount of information necessary and appropriate,” he told RMD. The circuit breaker concept, he said, would enable to lender to stop collecting documentation from the applicant who demonstrated the ability to pass the capacity test and the applicant conditions tests.
Many originators have speculated that the new underwriting is likely to rule out a good number of borrowers, with industry analyst Reverse Market Insight estimating that the changes implemented by MetLife could rule out as many as 10% to 30% of borrowers that would have qualified prior to the changes.
Written by Elizabeth Ecker