Financial Assessment Gives New Shape to Reverse Mortgage Underwriting

Nearly every professional working in the reverse mortgage space has been impacted by Financial Assessment in some way, but perhaps none have been affected as much as the underwriter. According to veterans in the field, the job of a HECM DE underwriter has changed drastically in recent years due to the advent of FA’s credit history analysis.

“The profile of the underwriter has changed. HECM underwriting used to require a more global view of the borrower profile,” says expert underwriter and Money House Senior VP Ralph Rosynek. Now, says Rosynek, FA’s credit analysis has underwriters adopting a more concentrated review.

Underwriters have to assess how borrowers live their credit lives, Rosynek says, and determine how extenuating circumstances might have come into play. “You still have the same compassion for helping seniors get a reverse mortgage, but the qualifiers or limiting factors that are placed upon the underwriter are a bit more detailed today.”

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Cynthia Danzy, underwriter and help desk manager at Open Mortgage, says the new requirements have dampened the pace of an underwriter’s work.

“Because there are so many things you have to analyze now, it takes longer to underwrite a loan. You have to be more in tune with their credit and their finances [to determine] their ability to pay their taxes and insurance. Before we were just concerned with the title and the property, and now we’ve got to make sure that it’s not a needs-based loan.”

Britany Luth, an underwriter and VP of best practices at Finance of America Reverse, says the sheer volume of documentation can be burdensome.

“In addition to the added documents necessary under FA, because much of the industry is still learning what documentation is necessary, generally the file is submitted with documentation for any and all of the borrower’s income and assets. The underwriter then has to wade through all documentation and determine what is needed and what is not to document the file,” Luth says. “This can be very time-consuming and causes underwriters to spend more time underwriting fewer files.”

HECM underwriters operating in today’s post-FA world must also assess any outside circumstances that have impacted the borrower. Luth says learning how to apply these is a challenge.

“While compensating factors are a defined list, extenuating circumstances could be any number of events that may have happened to the borrower. The circumstances may be one of the examples in the guide—i.e., the death of a spouse, divorce, hospital stays, major property repairs, etc.—or they could be more complex family situations,” she says. “It is difficult to prepare the underwriter for all of the potential extenuating circumstance scenarios that may arise during underwriting of a file.”

Danzy says it takes a certain type of person to navigate this challenge. “A good underwriter is someone who can think outside the box,” she says. “There are so many different ways of looking at what the customer is going through. You have to think, ‘If I allow this to happen, if I put this reverse mortgage through, will it be a sustainable fix for the senior?’”

With this broadened scope of analysis, the nature of the work has changed, requiring a type of underwriting more in line with that of the forward mortgage world.

Rosynek says that because of this, forward underwriters are now finding a place in the reverse market. “Today’s underwriters are coming from the forward FHA underwriting group of talent,” he says, “largely because of their strengths in doing credit analysis and their ability to work with varying property standards as we are dealing with properties that are coming in and out of the eligibility picture.”

While FA may have changed the pace and scope of an underwriter’s work, it might also help them better assess a borrower’s need.

“Financial Assessment allows you to see the bigger picture,” Danzy says. “It helps you determine if the loan will help the senior maintain their home and live there for the rest of their life.”

Rosynek says that although the underwriter’s job has changed in recent years, the spirit of the work remains the same. “The essence of credit review and the approval of a quality loan is still the primary directive.”

Written by Jessica Guerin

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  • Ralph is a long-time HECM underwriter. Despite other jobs with other responsibilities, his views are relevant.

    It seems Ralph is far more focused on extenuating circumstances than compensating factors. Is Ralph saying that compensating factors are not encountered or just being all but ignored in the underwriting process?

    Yes, the work per file has grown for underwriters but for, us, originators the complaint is not more work alone but loss of 15% of our business and compensation due solely to financial assessment.

  • I am sure if my views are not relevant I will be advised why they are not by my fellow readers here. I once was a proud member of the FHA HUD HECM Origination Team. I saw first hand how and why this HUD program was written into law and read the comments of President Ronald Reagan when he signed this into law. These loans were all to be set up as needs based. Some clients needs are more than others as I told my clients in the past. The costs to the community thru state and federal housing programs are so much more to the tax payers. By helping you stay and live in your homes till you are longer able too is the reason the FHA HUD loan was established.
    Then the tied started to slowly turn on our seniors by no cause of their own and us as originators. But the lenders in the forward mortgage world in the 2000’s and earlier were being prodded into increasing home ownership from the 50-60% range to the mid 70’s to 80%’s or more range. Hence dare I use these three words together, pay-option-arm loans. The bundling to investors and then the house of cards (no pun intended) came crashing down on us all. The FHA insurance premium I guess could not cover those increased property values our seniors had to protect them selves when it came time to move on out. So instead of making those that caused this scenario and pay in BIG money to keep this fund afloat we go to the ones that can not be heard we increase the premiums and now we are going to guess on what Mom and Pop are going to do in the future with their money, let alone where they live in their communities, how the economy is going to fair and how much prosperity the community we live in will do. So we will call this (FA).
    All of the above paragraphs in the article above took me back to my earlier career when working in commercial loan work outs in the early to mid 80’s. The loan officer would come to the meeting and get grilled by the board for what were they thinking when you proposed this $100’s of thousands of dollars loan for expansion say in 1975. Now 5 to 7 years later Prime Rate is double digits what where you thinking. The officer would leave the meeting kicking himself in the back side saying to himself, how in the world did I forgot Prime was going to 18%+ what ever.
    Those loan officers did not know the future and all these people above do not know either. If I or those above would know ( not trying to be a wise acker) boy howdy I would not be typing this and they would not be in the article either.
    I will wrap this up I got out because of all the tears of seniors we could no longer help those are the sounds of those that could of been helped but no longer will because of FA, and what they are guessing will happen to us in the future. The sad thing for myself and my wife is that we are old enough finally to look into the HECM. But…. as my Dad said the only thing GOLDEN about the golden years was that golden stream in the morning going into the bowl. I said well at least your getting it into the bowl he said I was right about that he could still aim cause if he missed it would be a pisser cause Mom would be really ticked off.
    Lets hope we could find sensibility in all this goofiness and we could go back to hitting the mark of what this program was meant to be. I have never met anyone that could predict the financial future of anyone or thing. Thank You All For Listening.

    • hecm4u,

      Maybe your comment makes sense to some but sentences like the following make your comment difficult to read and understand: “By helping you stay and live in your homes till you are longer able too is the reason the FHA HUD loan was established.”

      You forgot to put in “no” before longer.

      Then you say: “The FHA insurance premium I guess could not cover those increased property values our seniors had to protect them selves when it came time to move on out. So instead of making those that caused this scenario and pay in BIG money to keep this fund afloat we go to the ones that can not be heard we increase the premiums and now we are going to guess on what Mom and Pop are going to do in the future with their money,” and on and on and on.

      In that quotation you accuse all kinds of people of various nefarious acts but at the heart of all this is an attack on how HUD accounts for the HECM portion of the MMI Fund. If I am misinterpreting your idea, not all of the misinterpretation could be avoided.

      Your accusation angers me. Do you even know where to find the actuarial reports that HUD posts annually. Much of your accusation comes from your own ignorance because my accusation is that you have not read even one of those reports to date.

      Please disclose where you find this devious accounting. If you read the actuarial reports you would know that the HECM is not supporting the other MMI Fund programs but rather it is those programs that are supporting the HECM portion of the MMI Fund. HUD for the first time for any program had to take $1.7 billion from the Treasury just to support the HECM program back in fiscal 2013.

      You probably think yourself a very concerned and responsible person but your comment does not reflect the latter.

  • Mr. McSherry,

    If not corrected so much, HECM originators would still be calling HECM proceeds income. They are not. Nor is the HECM line of credit an asset as some sophomorically claim. (You would think that would be instinctively understood by originators since the only ones who can access the HECM line of credit legally are the related borrowers.)

    A HECM is a special category of financial product. It is not an asset like an annuity is to the recipient but rather it is a nonrecourse mortgage designed to maximize the options open to borrowers for cash inflow from the product as they choose (or are required) to take it.

    This is an odd type of nonrecourse mortgage since the government insures it, taking lenders off the hook in many risk aspects. Yet lenders face three very significant risks. The first is reputation risk from foreclosing on grandpa and grandma. The second risk is nonpayment of insurance and taxes which FHA insurance does not cover. Third there is the risk of lost business from being too strict.

    As of today, the industry is in depression not because of any action of the lenders but simply because the minimum standard of financial assessment is discouraging and not allowing seniors who would otherwise demand a HECM. Our business last fiscal year was not even 45% of what it was in fiscal 2009. The last seven years have either been loss years or years in a downward sloping stagnation.

    So while I agree with your observations especially as to personal lending where there is no FHA insurance, the same is not true in reverse mortgage lending. Currently ours is a business in distress due to insufficient interest from qualified senior consumers.

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