While several lenders have publicly explored the use of a financial assessment to reduce the instance of tax and insurance default among borrowers with any long-term measurement of success, Reverse Mortgage Solutions has implemented its own plan to monitor the instance of those defaults as well as an effort to prevent them.
So far, it is starting to show success.
Last year, RMS told its partners that it would no longer buy closed loans that had certain characteristics: either a new homeowner’s insurance policy, or past incidence of tax default meeting certain characteristics.
Current RMS data indicates that the change was warranted.
“We found 75% of our tax and insurance defaults began as defaults at closing, meaning they either had delinquent taxes or a new insurance policy,” says Mike Kent, president of mortgage lending at Spring, Texas-based RMS. “It was a good place to start. The end game is: how do we help mitigate tax and insurance defaults, but also, how do we mitigate a situation where a senior ends up in foreclosure?”
The question led RMS to begin testing its own version of a financial assessment, without additional underwriting, in its retail call center.
“We took our data and used it to determine financial assessment,” Kent says. “We could have chosen the way the others did it, but we said, ‘Here’s another way.'”
Coupled with the results of its borrowers currently on repayment plans, which is around 50% of those in default who are now making payments as they come due, RMS began to look at the question of willingness versus ability to make tax and insurance payments.
“We would never require of our partners and customers something we wouldn’t require ourselves, so we implemented it as a beta test in December,” Kent says. Four months later, RMS is beginning to see results with a the rough conclusion that between four and six out of 10 loans that would be denied, actually can be made without immediate default danger.
RMS’s multiple business channels from sub-servicing to correspondent lending and retail origination allow for the depth of analysis.
“One nice thing about having all of these channels is we have a lot of data and know how our decisions on the front end are going to effect processes down the road,” Kent says.
As for RMS’s future financial assessment plans, full implementation is pending.
“We have it, it’s written up, it’s good. Our plan is to run in the call center and then tweak it however we need to, then put it out to our partners for their input and comment,” he says.
Written by Elizabeth Ecker