NRMLA Asks FHA For Clarification on Upcoming Reverse Mortgage Changes

In advance of the implementation of a financial assessment for reverse mortgage borrowers slated to take place in January 2014, the National Reverse Mortgage Lenders Association is seeking clarification on the assessment.

In comments made to the Federal Housing Administration in response to a public comment request, NRMLA sought more information on a number of topics relating to the new borrower assessment, that will account for willingness and capacity to pay property charges including property tax and homeowners insurance payments.  

“It’s a highly complex topic that revolves around capacity, willingness, and compensating factors to determine whether set-asides are necessary,” NRMLA wrote in a notice to members on Friday. 


The comments focus on six topics including the need to take into account HECM proceeds in the dissipation equation;  the need to remove any discounting of assets; the need to make Life Time Expectancy Set Asides a requirement only if the applicant fails Capacity AND Willingness; the need to grant borrowers the ability to retire unsecured debt at time of closing and incorporate the reduced debt service in the Capacity calculations; the lack of minimum standards for the Willingness test; and the lack of any quantitative guidance regarding the “borrower authorization” to pay their property charges from the monthly payment or line of credit.

NRMLA cited an example of a situation with a non-borrowing spouse whose income cannot be considered under the proposed financial assessment in its cash flow analysis. However, NRMLA comments, in its view, all of the household income should be considered. 

The new rule is scheduled to take effect January 13, 2014. 

View the comment letter to FHA.

Written by Elizabeth Ecker

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  • Good Monday morning,

    I want to start out by saying I feel NRMLA did an excellent job in defining the need for clarificationon on the many issues they have addressed. I am more impressed with the changes NRMLA suggests to HUD, which I feel are needed in order for the financial assessment ruling to work.

    I also suggest everyone read the NRMLA letter to HUD, which can be accessed by clicking on :Comments” in the above.

    One other thing that NRMLA strongly suggests is delaying the financial assessment ruling going into effect on January 13, 2014.

    I feel delaying this part of the changes is a must! This portion of the changes to the HECM program is the most confusing and most critical we will be facing, If not implemented the right way.
    If we do not take the time to evaluate this financial assessment portion of the HECM changes, we can find ourselves in a situation where by very few seniors will be able to qualify for a reverse mortgage. This will be primarily because of the set aside fees calculated by lenders for paying future T&I payments.

    We all need a much greater deal of time to massage this part of the changes to the HECM program or we can be facing a disaster in our industry.

    Good job Peter Bell and NRMLA!

    John A. Smaldone

    • John,

      Financial assessment is nothing new for HUD or the mortgage industry. Set asides have been part of HECMs from its beginnings. We can spend years delaying implementation trying to tweak this and that but how will that help borrowers avoid property charge payment defaults?

      If HUD is willing to discuss the changes and make those they agree with, why delay implementation? After all it is our industry which has complained that without a HUD policy on financial assessment for HECMs, we have no practical way to tweak HECMs to lessen property charge payment defaults. Since the HECM financial assessment disaster which occurred at MetLife Bank, no major HECM lender has been willing to perform financial assessment without industry wide HUD financial assessment rules. Now is the time to implement a less than perfect financial assessment policy.

      There may be areas in the financial assessment rules where delay may be needed but to delay everything does not show that our complaints about not having HUD financial assessment rules was really anything more than a convenient excuse for the high percentage of property charge defaults we have seen in recent years.

      • You bring up very good points. However, I feel a delay a partial delay will not have a chance of getting through. On the other hand, we may have a chance to delay the entire implementation of the rule?

        You did well Cynic with your analysis.

        John Smaldone

    • John,

      I was notified of your reply and its content by Disqus before it was posted by RMD so I will answer it in this very awkward way. [You posted your reply at about 2:30PM (EDT) on 11/23/2013.]

      Why delay the whole implementation? Are you banking on the idea that somehow HUD will change its mind more in the future than now? Perhaps you are right but I doubt it.

      If we are really concerned about the increase in property charge payment default rates, then we should support a less than perfect financial assessment now rather than fighting for a delay of implementing it. While I have fewer problems with delaying some aspects, if we are serious about lowering these default rates, financial assessment needs to be implemented now.

  • In asking for the removal of all discounts on assets, did the authors have no appreciation for risk based and less risk based assets? It is laughable that those who are allegedly financial services professionals would request no discounting for any asset.

    Perhaps some of the percentages cut too deep but not to discount those assets which are in riskier asset classes need to be differentiated from those which are not. Discounting is a common means to make that differentiation. For example is there a difference better a federal government bond and one for the cities of Detroit, MI or Stockton, CA? Yes, the market discounts those values but do the values fully reflect their risk especially in when the assets are in the hands of less sophisticated investors?

    Some would say that ETFs and many other mutual funds are managed by professional managers and many times the best managed funds beat indices. Yet how is FHA to mandate such analysis? It is far easier to provide discounts as FHA did.

    The authors make some rational centered on income taxes. Yet they fail to discuss basis on assets versus no basis on assets which will be treated as income when distributed such as fully taxable pensions. The arguments are poor and misstate the real concern, risk.

  • So will companies pay for appraisals in order to have a file underwritten and hope a borrower qualifies in this mess? Or will borrowers want to spend $500-$600 (between counseling and an appraisal)to see if a reverse mortgage ‘might’ be an option for them?

    • reverseguy123,

      What is clear is that our traditional market will not only be negatively impacted by the changes now in place but even more so when financial assessment is fully implemented. While much of this is needed, some seems unnecessarily restrictive.

      It is unlikely lenders will cut profits still further by paying borrower costs. In most cases such lender paid costs will be pushed down to originators when it comes to adjustable rate HECMs.

      • i guess you misunderstood. Companies will not be paying borrower costs since they are reimbursed at closing, but if the loan never closes there will be no reimbursement. Many companies use this as a competitive advantage as borrowers do not want to be out of pocket $500 at application. Will borrowers really want to pay an upfront counseling fee of $125 and an upfront appraisal fee of $400-$500 not knowing if this loan will even go through with the financial assessment? What originators are going to sit down with people and pull credit, go over all there assets, income, ect to hopefully figure out if they qualify? I guess this will be the new ‘reverse originator’. What prospects (seniors) will be willing to give up all this personal information without knowing how the program works first? What originators are going to sit down with a prospect to ‘educate them’ about reverse mortgages without asking for all their personal financials and credit report? Would you sit down with a conventional mortgage prospect and spend hours with them educating them on a refinance and different mortgage pdts without knowing if they have any income, bad credit, bankruptcy, other debts, ect… Quite the catch 22 as many seniors are very protective about their personal information and others struggle to find there recent tax bill. It will be interesting to see how the new ‘boiler room’ call center approach we see many companies taking on in recent years will work out with these new requirements. The new era of reverse mortgages is here.

    • reverseguy123,

      Even though not posted by RMD, Disqus allowed me to read the response you posted today (10/25/2013).

      With annualized pull through rates, reflecting a four month lag to go from Case Number Assignment to endorsement, already showing up in the 64% range and anecdotal information being passed around that pull through rates may now be even worse, how many lenders/originators will want to take the risk that borrowers will close so that they can be reimbursed?

      Reluctance in divulging and gathering verifiable documents will be greater among the option based borrower over the needy borrower. Those who may not need a HECM but find value in it may not be as willing to provide the financial assessment information needed.

      However, every sophisticated borrowers may be the least resistant. They provide much of that information to their financial advisors already. In such cases, we will generally be submitting our requests to their record keepers.

  • Up to this point it hasn’t been all that painful but on some of the lower valued deals I’m working on I can certainly tell there’s going to more dropping by the way once these changes to into place. Before someone says, well, that probably means it wouldn’t be sustainable, let me say that one of these situations was so reluctant to move forward with the reverse until they priced their alternatives such as selling/moving or renting- and the reverse was clearly ahead of all of them. This homeowner won’t have but $300 a month available after bills are paid but also with NO property tax bill in (Falls Church, VA). Further clarification is absolutely necessary.

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