The Financial Assessment (FA) has forced reverse mortgage lenders to adapt to new credit rules during the underwriting process. And for some originators, these new guidelines for determining a potential borrower’s “willingness and capacity” to afford a reverse mortgage have not been total deal breakers, despite previous expectations.
Clearly, one of the biggest differences in originating under the FA is that originators now have to fully vet potential borrowers and their financials prior to their application, says Brian Cook, mortgage advisor and reverse mortgage specialist at Primary Residential Mortgage.
“Previously it was simply comparing the loan-to-value. However, with the FA, an originator has to be more conscious of their client’s financial standing and history,” Cook says.
Even though spotty credit is not necessarily the end-all-be-all when it comes to reverse mortgage eligibility now under the FA, it is one piece of the puzzle that provides a glimpse into a prospective borrower’s financial picture.
“With the FA, you are mostly going to look at debts and their ratio-to-income, however, one still needs to be conscience of other factors, including collections and previous mortgages on credit,” Cook says.
Analyzing credit is pretty straightforward, says Kari Van Kleef, operations manager at Fairway Independent Mortgage Corporation.
“On the reverse mortgage side it’s more lenient as far as you’re not so concerned with credit score,” Kleef says. “For the collections and judgements, you need to find out what they are, but clients don’t need to necessarily pay them off at that point.”
Kleef, who runs all of operations and processing for Fairway, notes that during her credit analysis she will look to see if a client’s has recorded any 30-day late payments in the last 12 months with their mortgage. She also does the same for the client’s installment and revolving credit.
Getting the documentation from potential borrowers to prove certain extenuating circumstances have contributed to any credit blemishes creates some opposition, though nothing too out of the ordinary for clients.
“Most people are accustomed to providing this documentation when doing general financing,” says Kleef. “It’s when you have to get more personal and have clients explain and prove it [their circumstances], you get a little pushback.”
When conducting a credit analysis, Fairway doesn’t see many cases where the FA guidelines prevent clients from qualifying for reverse mortgages, particularly if they have “lates” on their revolving credit card debt.
“There seems to be plenty of compensating factors or extenuating circumstances to get around those lates,” Kleef says, noting that the most important areas of consideration when doing a credit analysis surrounds property charges and mortgage installment debt.
“We’re spending a lot of our time helping people that have very limited income. That’s bigger than anything on a credit report,” Kleef says. “It’s meeting some of the residual income factors that have been more difficult than meeting some of the other factors.”
Written by Jason Oliva