Financial Assessment Six Months Later: A Reverse Mortgage Industry Status Check

Believe it or not, but it’s been six months since the Financial Assessment has taken effect, forever changing the way reverse mortgage lenders and other industry participants do business.

Though it’s only been half a year with the new Home Equity Conversion Mortgage (HECM) rules and requirements in place, a lot has happened—some bad, but mostly good as the industry moves further into Financial Assessment territory.

Financial Assessment bites into volume

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As is the case when the Department of Housing and Urban Development (HUD) implements any significant changes to the HECM program, there is an impact on volume in the following months.

In the months immediately following April 27, HECM endorsements were riding high for the year as many borrowers rushed to get case numbers before the Financial Assessment’s effective date, reaching a peak in August with 5,750 loans endorsed before crashing nearly 19% to 4,671 loans in September, according to industry data tracked by Reverse Market Insight.

But while endorsements reached their highest level since July 2013 this past August, the number of loans actually funded by FHA offers a more harrowing depiction of the Financial Assessment’s true impact on industry volume.

In Fiscal Year 2015, which ended September 30, FHA endorsed 57,990 HECMs. However, given that the Financial Assessment took effect with HECM case numbers issued on or after April 27, only 4,566 of those endorsed loans have been processed and closed under the new guidelines, according to HUD data relayed to RMD via email from an agency spokesman.

Whereas the impact of the Financial Assessment has begun to sink its teeth into industry volume, other critical components of the reverse mortgage process are showing some recovery.

HECM counseling bounces back

When ClearPoint Credit Counseling Solutions planned its counseling activity for 2015, the company budgeted about 250 sessions per month based on the number of clients on its roster, according to Sue Brown, vice president for ClearPoint. But as the Financial Assessment drew closer, things got a bit hectic.

“We were filling that capacity right up until the month before the Financial Assessment,” Brown said. “Then we had more requests for counseling than we could handle.”

In the two months following the Financial Assessment taking effect, Brown noted that ClearPoint was running at about 50% of what its planned activity was for the year, but has since returned to more “normal” levels of about 200-250 counseling sessions per month in August and September.

“In the last two months, we’ve been right where we expected to be,” Brown said. “We’re seeing a return to normalcy in terms of the number of counseling sessions. As we’re trending to October, it looks like we’re going to continue to hit our capacity.”

Even counseling session times have, on average, begun to come down a bit as the Financial Assessment has been in effect for several months now, spiking from around two hours per session to about an hour and 45 minutes as counselors have become more well-versed in their conversations about the new rules with prospective borrowers, Brown noted.

Longer session times have caused some HECM counseling agencies to increase their fees, especially in light of a HUD Mortgagee Letter this summer, which stated that a fee of $125 is neither a maximum nor a minimum allowable charge for counselors.

ClearPoint, however, which kept its pricing flat even with the longer session times, sees a challenge in being able to keep counseling fees affordable for homeowners, especially as federal funding paid to counseling agencies is on the decline.

“As we look at an an era where HUD funds are going down to counseling agencies every year, it really becomes a challenge for agencies to continue to provide thorough sessions,” Brown said.

More learning, less selling

For the reverse mortgage industry, the Financial Assessment was a long time coming well before its April 27 effective date.

After teasing the arrival of the new requirements for nearly two years, HUD’s highly anticipated rules finally arrived in April of this year and the industry let out a collective sigh of relief, if only because the uncertainty surrounding the implementation date was gone at last. But even with the effective date set in stone, a whole new set of uncertainties arose once lenders were required to put the new rules into practice.

“Everybody knew the Financial Assessment was coming,” said Paul Fiore, executive vice president of retail lending at American Advisors Group (AAG). “No matter how much training was done, until it became reality, only then did people start to learn how intricate Financial Assessment is. It really is a complete change in how you do business.”

With such change, the reverse mortgage industry was required to undergo a whole new education process, inadvertently causing somewhat of a trade-off between learning and selling.

“What happened was everyone started to learn in the first 90 days following the Financial Assessment,” Fiore said. “Because it was a real learning experience for originators, people were doing more learning and less selling.”

Help from HUD

In the months preceding and following the Financial Assessment, HUD has offered several training courses to help reverse mortgage lenders become familiar with the new rules and clear up complexities in complying with the new underwriting standards.

“FHA recognized that the industry would need a lot of lead time to understand the new requirements and to set in place their internal operating procedures and system requirements,” a HUD spokesman told RMD via email.

HUD has offered several webinars on the Financial Assessment process, the most recent of which occurred September 29. The nearly two-hour long training session explored the various complexities of the new underwriting requirements, particularly around helping reverse mortgage originators calculate extenuating circumstances and compensating factors.

“While it’s a little early to draw any definitive conclusions, overall FHA is pleased with mortgagee acceptance of and compliance with the new requirements,” the HUD spokesman told RMD. “That’s especially true since the Financial Assessment represented such a significant change in the way HECMs were processed.”

Six months after the Financial Assessment has been in place, HUD notes a shift in its discussions with reverse mortgage industry participants, saying conversations have leaned more towards how lenders can meet the new requirements, rather than why lenders have to perform the Financial Assessment.

“There has been an ongoing dialogue with the industry from the moment we introduced the Financial Assessment requirements, and we expect that to continue,” said the HUD spokesman.

Over the next few weeks, FHA will be reviewing HECMs processed under the Financial Assessment requirements in more detail, the HUD spokesman said.

“That will give us a better handle on any aspects of the process that require clarification, and areas where additional training would be beneficial,” the HUD spokesman told RMD.

The federal agency also plans to further its connection with reverse mortgage industry personnel by attending industry conventions and other events, including the National Reverse Mortgage Lenders Association 2015 Annual Meeting in San Francisco next month, where FHA staff will be making presentations and participating in panel discussions on key HECM program changes made this year.

“FHA recognizes its ongoing responsibility to continue to reach out to the industry, to listen to its concerns, and to work to improve the process and mortgagees’ understanding of it,” HUD said. “One point we have been trying to emphasize in our training efforts and our discussions is the importance of making a decision that a HECM represents a sustainable solution to each mortgagor’s particular financial circumstances.”

This edition of the RMD Report is sponsored by national appraisal management company Landmark Network.  

Written by Jason Oliva

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  • Here we go again relying on anecdotal evidence of just one counseling agency. At that they were “feel good” generalizations. The facts for the industry are not nearly so unspecific or encouraging.

    We have actual case number assignments (CNAs) from HUD for June, July, and August. Here are those results:

    Month ———– Total CNAs

    June ————– 6,183
    July ————— 6,350
    August ———– 6,089

    Total ————- 18,622

    That is the worst total for that three month period in a decade. It is 15.58% worse than the second worst total for that same three month period in the last decade. Notice how August was the lowest month total in that three month period. That is not the direction we would expect from the anecdotal generalizations cited above.

    With conversion rates at a two decade fiscal year low of 59.47% for fiscal 2015, not only do counseling certificate numbers have to go up due to financial assessment endorsement drag but also to offset the continuing fall in the conversion rate. During fiscal 2007, the conversion rate was 97.48% (when we had over 107,500 endorsements) and the overall program conversion rate is now 74.43% (from inception through September 30, 2015). To understand how serious this is, if the rate that applied during fiscal 2007 had applied in fiscal 2015, our endorsement total would have been 95,166 rather than 58,053.

    I am afraid neither the 200 nor 250 total Sue cites is doing much to improve monthly total case number assignments. 200 counseling certificates is 20% worse than 250 counseling certificates and yet 250 counseling certificates is the expected. So the range provides little to no comfort as to the impact of financial assessment on endorsements at all.

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