It may seem like excessive regulation in recent years has depressed reverse mortgage volume and shrunk the overall pool of potential borrowers who could qualify for a Home Equity Conversion Mortgage. But there is an opportunity for the industry to control its own destiny and facilitate some positive change through an all-out data collection effort, according to a group of reverse mortgage industry leaders.
Last year’s implementation of the Financial Assessment was a recent example of the reverse mortgage industry’s ability to roll with the punches. Devised to address the 10% spike in the default rate among HECM borrowers in 2013, the Financial Assessment, in turn, eliminated roughly 20% of the pool of potentially eligible borrowers who might not qualify under the rule’s new underwriting standards.
Figuring out how to broaden the “credit box” and help creditworthy applicants get the help they need through a HECM was a focal point of discussion among reverse mortgage industry executives during the National Reverse Mortgage Lenders Association’s (NRMLA) 2016 Annual Meeting & Expo in Chicago this week.
“Now that we are a year and a half past FA, the impact was definitely greater than we thought of having a credit and income overlay,” said Reza Jahangiri, chief executive officer at American Advisors Group, during a panel session comprising NRMLA’s Executive Committee. “It has been taking some time to adjust.”
As lenders see HECM applicants, who might otherwise appear to be creditworthy, not qualify due to the underwriting process under the Financial Assessment’s residual income standards, it is critical that lenders take note of these borrowers who fall through the cracks.
“It’s important that all of us collect data on all those who don’t get through, start drawing inferences of common characteristics, and start providing solutions to solve for,” said Mike Kent, president at Liberty Home Equity Solutions Inc. “It would be in our best interest to collect data and work with NRMLA to use that data to build policy positions we can present to HUD.”
Every year at annual gatherings such as NRMLA, key personnel from the Department of Housing and Urban Development (HUD) present a variety of data and HECM performance metrics to the reverse mortgage industry.
Such data directly influences the agency’s policy decisions and rulemakings for the HECM program, making it all the more important for lenders to record data of their own to aid their discussions with regulators like HUD and the Federal Housing Administration.
“The more we talk to HUD, they are certainly open to issues with borrowers,” said Sherry Apanay, chief sales officer at Finance of America Reverse. “Being able to provide real data that speaks to how it is impacting the borrower, and if there are creditworthy borrowers that are not making it through, figuring out what those points are that we could bring together as an industry is critically important.”
Regulators like FHA and HUD need and want data-driven recommendations from the reverse mortgage industry, said Joe Demarkey, principal and strategic business development leader at Reverse Mortgage Funding LLC.
“HUD needs good data to make good, smart policy decisions,” he said. “FHA makes changes all the time—it happens ever year in our space—but it is data-driven decisions that are made.”
At the association-level, a “strategic imperative” for NRMLA in the coming year will be focused on looking at ways to broaden the credit box as it applies to HECMs, said NRMLA Executive Vice President Steve Irwin.
“We’re undertaking serious tactical initiatives, which include data analysis, cobbling together recommendations and furthering policy discussions,” Irwin said.
In line with the main theme of this year’s annual conference, NRMLA also plans to engage efforts focused on improving the customer experience for reverse mortgage borrowers.
“This is critically important on many levels,” Irwin said. “To have a good outcome and customer experience can only lead to improved perceptions of the HECM product.”
Written by Jason Oliva