The move toward an industry-wide assessment for reverse mortgage borrowers has been pending for many months, as an effort to prevent future tax and insurance defaults. With MetLife having implemented an assessment and then pulling back from it, Urban Financial now seeking commentary on its own drafted version of a new policy, and still others using less formal means to assess borrowers, many lenders and originators are left wondering: What is the best way to go about conducting a financial assessment, and what should it entail?
“We don’t want to create tomorrow’s foreclosure today,” says Jeff Taylor, president and CEO, Wendover Consulting. It’s a common sentiment in the industry. No one is disputing the need for some way to prevent tax and insurance defaults, but lenders do vary in their thoughts on what a tool or method looks like.
“No one benefits from a senior getting into a product or program that could harm them financially later on,” says Josh Shein, vice president of Maverick Funding. “The changes, however, should be incremental. A ‘shock’ to the system would not help anyone and could harm the industry and borrowers.”
An incremental approach that incorporates small changes over time is desirable, Shein says, so that the industry can absorb and analyze the changes and ensure they benefit and protect borrowers in the best possible way.
MetLife’s version of financial assessment, implemented in November and later suspended in January, included a thorough assessment of previous mortgage late payments, credit requirements and cash flow analysis. Many say the company went too far and ruled out many borrowers that should have been able to qualify, and would have qualified previously, or under a different lender’s requirements. Some components of the assessment, however, should be included, lenders say.
“We’d like to be able to modify the offering,” says Gregg Smith, President and CEO of One Reverse Mortgage. “It would be good if a lender could dictate the terms that a client gets,” he says.
Most agree that an assessment of past tax payment history as well as a look into whether the borrower has a current or new insurance policy can be used as a tool, but shouldn’t make or break the loan.
“The economic times have radically changed,” Taylor says, of the recent history for reverse mortgages. “The industry would be doing the borrower and lending community a disservice if they don’t go at least one layer deep,” he says.
But lenders continue to seek control over the process, with their own ability to accept and reject borrowers as they have done in the past.
“I want it to make sense for me and the borrower that if they are at a higher risk of default based on statistical analysis, there need to be some compensating factors that would allow them to still get a reverse mortgage,” says Paul Fiore, vice president of sales for American Advisors Group. “I’d like to be able to take care of the borrower regardless of credit score,” he says, “and make it simple enough for those it should be simple for.”
The topic of set-asides for tax and insurance has also been discussed as a possible solution in light of the MetLife financial assessment, but with HUD prohibiting escrows for tax and insurance, the idea is complicated.
“Where someone needs 100% [of funds] to pay off mortgage, then doing set asides is not really an option,” says Taylor. “The discussion of escrows has run the gamut.”
Many lenders agree that having control over the process is important, but they are also partly left with their hands tied because there is no industry standard. The competitive landscape with different versions of financial assessment makes the move toward implementation a slow process.
However, market conditions along with the promise that HUD is working on a financial assessment rule for mortgagees should lead lenders to the solution over time, they say.
“I don’t think there’s any lender out there saying ‘no’ to this,” says Gregg Smith, president of One Reverse Mortgage. “They just want it to happen from the top.”
As for the potential for several versions of an assessment being introduced to the market simultaneously, Taylor says the market will take care of itself.
“Market dynamics will determine the best execution,” he says. “Volumes were shifting from one lender to another… we’re going to reach more common ground over time.”
Written by Elizabeth Ecker