The Good, The Bad and the Reverse Mortgage Financial Assessment Delay

After years of the Financial Assessment looming over the reverse mortgage industry, its delay has been met with mixed feelings—both frustration and relief.

Some industry professionals welcome the delay in the regulation’s implementation, which the Department of Housing and Urban Development (HUD) recently announced would be pushed back to April 27, 2015, eight weeks after its original March 2 effective date.

“AAG supports HUD’s decision to delay the implementation of Financial Assessment,” says Paul Fiore, executive vice president of retail sales at American Advisors Group. “FA is a huge change for our industry as a whole. Extension of the implementation deadline will allow for careful consideration of the many moving parts involved with FA and ensure a proper rollout.”

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Others say the long-heralded rule needs to just roll out so reverse mortgage lenders can adopt “the new way of doing business.”

“The delays are causing more confusion and frustration,” says Certified Reverse Mortgage Professional Beth Paterson, executive vice president of Reverse Mortgages SIDAC. “We just need it in place so that we can accept it, move forward and do loans.”

Years in the making, the Financial Assessment has already gone through several delays, beginning in November 2013 when then-Federal Housing Administration (FHA) Assistant Secretary Carol Galante told attendees at an industry conference that it would grant an extension period past its previous January 13, 2014 implementation date.

Another two delays followed, until HUD announced in November 2014 that the Financial Assessment would take effect for home equity conversion mortgages (HECMs) assigned on or after March 2, 2015.

Since HUD made that announcement, lenders have rushed to prepare for operational challenges and brace for the Financial Assessment’s impact on loan volume, while counselors have ramped up training efforts and geared up for increased costs they expected would arise following the rule’s implementation.

While the Financial Assessment’s latest delay may have been unexpected, it will give lenders and other industry professionals some breathing room as they continue to prepare.

“I was a bit surprised considering the numerous delays in the implementation. However, I see a silver lining in that lenders will have the gift of more time to continue to fine-tune their internal processes, training and technology while HUD completes similar preparations,” says Shannon Hicks, president and co-founder of Reverse Focus, Inc.

The extension period will provide the benefits of a more streamlined process and additional time to continue training originators, underwriters and processors, he adds.

When HUD announced the decision Feb. 12, it cited a delay in the delivery of “certain system enhancements” required to support policies published in Mortgagee Letters 2014-21 and 2014-22.

Driven in part by challenges in technology, the postponement will allow lenders to fully implement the necessary tools prior to the Financial Assessment’s effective date, says John Button, president of reverse mortgage origination software provider ReverseVision.

The software provider has been equipped for the new rule starting March 2 in advance of the new implementation date set by HUD, but says the additional time will help incorporate new features.

“This delay provides a better opportunity for lenders to get the required technology changes — ours, HUD’s and other systems — implemented into their processes before using these tools in regular production,” he says.

Despite some of the positive benefits of the Financial Assessment’s delay, reverse mortgage professionals say it creates an aura of uncertainty in an industry that has seen “monumental changes” to the product over the last few years.

“Reverse mortgage originators may be sensing some confusion and apprehension until the proverbial dust settles,” Hicks says. “While the delay may be welcomed by many, there are those who wish to put this chapter behind as we enter the brave new world of reverse mortgage lending.”

Written by Emily Study

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  • It is interesting that only one person stands as the sole voice for immediate implementation. It is strange that the quoted representatives of the largest industry lender, largest software vendor, and largest marketing support company all believe that the delay is a good thing since it was lenders who pressured HUD to implement a uniform financial assessment system as soon as practical back as early as 2008.

    One thing that the delay in implementation clearly accomplishes is increasing the probability that the endorsement count for fiscal 2015 will end up being the worst fiscal year for endorsements in a decade. As to endorsements and industry growth, it seems financial assessment will continue the overall downward trend in endorsements we have experienced since fiscal 2009 whether or not financial assessment ends up being little more than overkill after the changes implemented on September 30, 2013 and August 4, 2014.

    No one doubts that the result of financial assessment will be that defaults for payment of property charges will go down, but at what cost? Delaying implementation a few years will give HUD some idea if 1) financial assessment is even needed and if so, what needs to be tweaked in order to mitigate any collateral loss in business and 2) LESAs in their proposed form result in the over restriction of the use of proceeds by borrowers and could be ramped down to accomplish essentially the same thing.

    Now more than ever, why not put off financial assessment for a few more years (or even indefinitely)? Adding to the recent HUD changes of 1) lower principal limits and 2) a first year disbursement limitation (which are working together to remove a huge percentage of the most likely to default on payment of property charges) is the trend in increased home values which means that there should be fewer technical property charge payment defaults. The HUD program changes just cited are so recent that no one can reasonably and rationally conclude on just how they will lower property charge defaults over what they were at their peak (approximately 10% of all active HECMs); overall home value stabilization and increases mitigate property charge defaults further. If after a few years of analysis and evaluation, it is decided that for the good of lenders, financial assessment is a necessity, then bring institute it to the extent that circumstances dictate. Was that not the reason that HUD asked for and Congress and the President gave it the Reverse Mortgage Stabilization Act of 2013 so that HUD could rapidly change the HECM program as needed?

    If the HUD changes through 9/30/2013 were in place in the fall of 2010, would Wells Fargo have left the industry over financial assessment as Mr. Franklin Codel, an EVP and head of mortgage production, indicated it did? Would MetLife have instituted its own form of financial assessment and then left the industry when that failed? Would defaults have ever reached anything close to 10%? These are the kind of questions HUD should be asking itself before moving ahead with implementation on April 27th. It is time to investigate and evaluate not somewhat blindly implement when the stakes are so high.

    (The opinions expressed in this comment are not necessarily those of RMS or its affiliates.)

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