But until then, the industry is split between lenders who anticipate minimal impact on loan volume and those who expect a reduction by at least 15% as they adapt to the change.
The confidence of lenders who largely expect the implementation of the financial assessment to be a “non-event” is bolstered by their experience on the forward side of mortgage lending and the simulations they’ve run to assess the potential impact following the March 2 implementation.
“Our belief is we’re probably not going to see more than a 3-5% impact, which is minimal to us,” says Dan Harder, president of 1st Reverse Mortgage USA, a division of Cherry Creek Mortgage Company. “Because of our background in forward mortgage lending, from an underwriting and risk management standpoint, philosophically it’s kind of a non-event for us.”
The underwriting staff of 1st Reverse Mortgage USA/Cherry Creek comprises six full-time designated underwriters who have an average of 20 years of traditional lending underwriting. They are also all VA-approved. But even so, the challenge lies in getting personnel up to speed on implementing the necessary documentation required by the financial assessment.
“Our underwriters are already equipped to understand extenuating circumstances, compensating factors and credit risk,” Harder says. “For us, it’s more of how we implement [financial assessment], but for some it could be a heavily burdensome event.”
In a recent RMD readers poll, 54% said they expect to see a 15% or greater reduction in loan volume as a result of the financial assessment. Meanwhile, about 14% anticipate a reduction between 11-15%, while 16% expect a reduction of about 6-10%. Voters representing those who expect less than 5% reduction in volume represented 16% of total votes as the second week of January.
For top reverse mortgage lender AAG, the expected number falls between 8% and 10%, based on the company’s analysis.
“AAG has conducted a thorough analysis to determine the projected impact that the new financial assessment rules will have to our business, and simulations show a potential 8-10 percent reduction to current business volumes,” says Paul Fiore, AAG executive vice president of retail lending. “However, through expanded marketing efforts we believe we’ll not only compensate for the potential decrease in loan volumes, but ensure sustained business growth in 2015. We don’t think this is unique to AAG, but expect that the industry as a whole is working to increase marketing activities to stay ahead of the curve.”
Others are hesitant to put a number on any potential impact just yet.
“There will be an impact, but there are just too many variables to put a number on it,” says Gregg Smith, president and COO of One Reverse Mortgage.
While lenders could look back on past clients and their credit to see how that relates to the financial assessment’s willingness to pay portion, Smith says a lack of true data on borrowers’ capacity to pay presents a challenge in forecasting who would have difficulty in meeting this requirement.
“There’s going to be a short-term learning curve and a steep learning curve for the changes that are going to happen on March 2,” Smith says. “Initially, in the first 6-12 months, the industry will have some heartburn internally trying to work through and refine the process.”
Open Mortgage, which also plans to rely upon its forward lending experience in adapting to the financial assessment on the reverse side of its business, is already well underway on hosting a series of webinars to facilitate discussions on training. The company expects a 5%-10% volume impact as a result of the new rule.
“Open is going to be prepared since we’re a large forward lender and that’s going to help us from that standpoint,” says Joe Morris, senior vice president of Reverse Mortgage Lending for Open Mortgage. “Income and credit is going to be forward-like, so we’ve had a lot of help as far as training is concerned.”
Ultimately, lenders view the assessment as a short-term adjustment that has long-term benefits to the reverse mortgage product and to the industry as a whole.
“For AAG, financial assessment puts into practice something that for us has been used for many years as more of a sales effort—having a clear understanding of the borrower’s current financial situation before reverse mortgage and their ability to manage their loan in the future,” Fiore says. “In the long run we believe financial assessment only serves to make the product stronger.”
Written by Jason Oliva