Reverse Mortgage Funding, LLC (RMF) is aiming to grow the reverse mortgage marketplace by taking a new, simplified approach to the borrower qualification process. This is according to a presentation made by the company during the National Reverse Mortgage Lenders Association (NRMLA) Virtual Summer Meeting this month, as well as direct conversations with company personnel about the change.
While currently limited in scope to customers seeking the company’s proprietary reverse mortgage product “Equity Elite,” the new procedure being used to determine borrower eligibility has been determined after conversations industry-wide, as well as with borrowers to improve the origination experience at both ends: for loan officer and borrower alike. It may also help to reduce the process of gathering documentation, by observing borrower eligibility before acquiring information for more conventional income sources.
Efficiency in qualification
One of the aims of the new qualification process RMF is undertaking is to increase efficiency in the qualification process, which has the potential benefit to increase satisfaction for borrower and loan officer alike. By observing all of the requirements that come with a reverse mortgage loan and looking at ways to simplify the process, a pattern in the “typical” qualification process began to emerge that could be addressed. This is according to Joe Demarkey, strategic business development leader at RMF in an interview with RMD.
“The way that I would think about this — at the highest level — is that I think most loan officers have approached qualifying borrowers not necessarily the wrong way, but not in the most efficient way,” Demarkey tells RMD.
After getting the most basic borrower information including name, age, homeownership and mortgage status, the typical way that an originator speaks with a borrower during the qualifying process usually moves quickly into what Demarkey calls “conventional income sources.” These sources typically include things like Social Security benefit payments, pension payments, whether or not the client is still actively working and if so, what his or her salary is and the form that it takes.
“Interestingly, the documentation requirements for these ‘traditional income sources’ are usually most voluminous, and are usually the hardest things to get from a borrower,” Demarkey says. “Think about somebody’s tax return, or trying to get somebody’s Social Security benefits awards letter or documentation to support your pension income. They’re usually the hardest to try to obtain.”
This is especially true of higher net worth individuals, who are more likely to seek out a proprietary reverse mortgage than a traditional Home Equity Conversion Mortgage (HECM) because of higher lending limits being a generally better fit for someone who may have a higher value home, Demarkey says. However, after the conversation about traditional income is finished, a loan originator will likely move onto other topics during the qualification process, including other assets like retirement or brokerage accounts.
This is where the “inversion” of the qualification conversation begins to take hold in granting greater potential efficiency to the process.
Beginning at the traditional ‘end’
When a borrower enters in applicable income and asset information, most of the time the loan officer’s loan origination system (LOS) will help visualize when a borrower reaches the qualification threshold.
“All of these loan origination systems, they’re helping the loan officer in that once the borrower is qualified, they’ll know it if they’ve input enough income into the loan origination system where the borrower is qualified,” Demarkey says. “They’ll know that the borrower is qualified. They don’t need to go any further.”
Without enough traditional income sources or enough assets to dissipate, the originator will naturally turn to the loan structure being offered to the client. So the typical qualification process of beginning with traditional income before moving onto assets and then ending with proceeds dissipations should be changed, Demarkey says.
“We think they should reverse the order of those three categories,” he explains. “They should start by looking at proceeds dissipation, because there’s absolutely no documentation requirements that are needed from a borrower in order for us to dissipate loan proceeds. In other words, how much principal limit is there after we pay all the mandatory obligations that the borrower might have? Is there enough unused proceeds that if we dissipated over the borrower’s life expectancy, do they qualify just with loan proceeds dissipation alone? If they do, that’s fantastic news.”
There is no longer any additional documentation needed to support the client’s traditional income sources, nor is there any needed to dissipate assets they might have since proceeds dissipation alone can qualify the borrower. Such a scenario provides an optimal outcome for both borrower and loan officer, Demarkey says.
In instances where that may not be enough to qualify, then the recommended second step to move onto is a conversation about assets, because the necessary accompanying documents are still far less than what is typically required when compared to conventional income sources, he explains.
“If [the borrower] had a 401K, all we need is their last quarterly statement,” he says. “Or if they had a brokerage account with Merrill Lynch, we just need the last quarterly statement. If it’s a savings account, we’d just need the last two monthly statements. It’s much easier to document assets than it is to document income. And then lastly, if the borrower is still not qualified with proceeds and asset dissipation, then [the loan officer can] turn their attention to traditional sources of income.”
Potential application to HECM, wider industry
While this is a change in the way that RMF plans to have its qualifying conversations with Equity Elite borrowers, there’s nothing that restricts this same process form being used for HECM borrowers. It just may make a little more sense to have it focused on the proprietary side, Demarkey says.
“This methodology that I just described to you not only applies to Equity Elite, it also applies to HECM,” he says. “Our hypothesis is that because proprietary products are more often than not taken out by higher net worth individuals, the ‘proceeds-assets-income’ path will probably be a much more efficient process for them as opposed to HECM, which is often taken out — but not always — by the needs-based borrower who might not have a higher net worth. They might not have a lot of disposable assets that can be dissipated. So, we thought about this specifically with regards to Equity Elite.”
This is a method that can be used by RMF’s own dedicated retail loan officer corps or by third-party origination (TPO) partners alike, Demarkey says. Since the intent is focused on improving the borrower and origination experience while also hopefully improving underwriting and operational turn times, Demarkey hopes that some internal procedures for qualification could change when they see what kind of impact this procedure can have.
“I want every single one of our broker partners to become more efficient with their back office,” he says. “That’s good for them, which is good for us, which is good for borrowers. Again, I think that improved borrower experience and better operational and underwriting, turn times and efficiencies, that applies across the ecosystem of our industry, whether you’re a broker, a closed loan seller, a principal agent, it helps everybody.”