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I recall when I began originating reverse mortgages in early 2005 the sheer simplicity and elegance of the HECM program. At that time it was simple; equity, age and property guidelines determining eligibility. Having came from the financial services industry it was a welcome relief from pages of disclosures, detailed financial analysis and asset verification. Despite the lack of required financial fact finding I noted my borrower’s income sources, expenses and current assets.
Fast forward nearly ten years later and the federally-insured reverse mortgage more closely resembles conventional loans. Stricter underwriting guidelines, verification of assets and income all point to the new era or risk mitigation and proactive underwriting. It’s an internal contradiction for many originators who became accustomed to limited guidelines for a loan that primarily served the requirements of needs-based-borrowers.
The truth is this. Today’s Home Equity Conversion Mortgage will require a new breed of originators. To succeed, loan officers will need to become conversant with financial fact finding, requesting personal tax and financial documents and tracking the nuances required by the upcoming Financial Assessment. In essence, a more educated and sophisticated mortgage professional. The good news is that most
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meowners are familiar with this process having taking a conventional mortgage at some point in their lifetime. The challenge is not so much the external perception of applicants but our internal notion’s of fact-finding and underwriting. Do we fear asking such questions? Do we approach the applicant apologetically or with the confidence that this is the new standard of doing business? It’s an significant point to ponder.
The adage “Perception is reality” applies to our communication with potential borrowers. We should avoid droning on how the program used to have no income or credit requirements. It’s counterproductive. Why plant the seeds of doubt heightening fears of releasing personal financial information.? A better approach is one of confident pragmatism. Educate borrowers on the value that risk assessment provides in helping insure the reverse mortgage helps meet their long term goals of aging in place. Let them know that you are on their team to help provide the information needed to successfully move forward with a reverse mortgage as part of their overall retirement plan.
For some the increased underwriting requirements and assessment may be daunting. It’s our challenge to embrace the new reality of HECM lending and present it with confidence and clarity in the years to come.
What are your thoughts on what will be required of reverse mortgage professionals in light of the upcoming Financial Assessment?
7 Comments
Shannon, this is an excellent article. I’ve been originating since 2004, and I’ve learned to “Roll With The Punches”.
I understand that a few people back in Washington D.C. wanted to shut the program down, so we should all be thankful the the HECM is going to be around to help seniors age in place.
I agree that when we have to start asking for the financial information we will need, the seniors will react the same as if they were applying for a “Forward Mortgage”.
It’s going to mean more work and time for us originators, but it sure beats the “Alternative”.
Owen Coyle
Owen,
Who says the fight for preservation of the HECM program is over? They obviously do not understand the mood in Congress over the $1.68 billion HUD transferred out of Treasury at the end of last month while all the time blaming the need for the transfer on HECMs.
During the almost 3 hour marathon session with Commissioner Galante yesterday in the House Committee on Financial Services, many, many references were made to the PATH proposal (HR 2767). Section 292 of that bill mandates the end of any HECM originations within two years after enactment. Since this bill has been reported to the full House by the House Committee on Financial Services with its recommendation for passage, its sponsors are hoping for passage before the end of the first quarter of next year.
You can get further information on the Protecting American Taxpayers and Homeowners (“PATH”) Bill at — http://thomas.loc.gov/cgi-bin/bdquery/z?d113:h.r.2767:
The noise on eliminating the HECM program will go up in the next few months. To be forewarned is …..
Shannon, as usual, enjoyed your comments this morning. Funny that you should mention when you began originating RM’s just how easy it was compared to Forwards. That was one of the reasons I left the title business and got into RM’s
Now we are going back to the ways of the forwards much to my dismay. I dont doubt it is needed but the fact that assets and income are now going to have to be assessed, it will cause marginal prospects to fall by the wayside. And yes, we will have to adjust and become the NEW orginator if we are to be successful. I just wish we could get someone to set out the peramaters of what will be needed and just how that financial information will be assessed. Not to mention the “OLD” way it was done is the right thing to do, but a lot of my new suspects seem to know the “OLD” rules..
We are still in the “people” business so if you can earn thier trust, they will be more at ease giving you thier financials.
Have a great day Shannon!!
A financial planning background will be important . You have to look at the seniors whole picture…financially – A reverse mortgage can not be a band aid approach. How will a reverse mortgage help them maintain their financial independence to the end of their lifes.
This is how a RM professional has to look at this program going forward.
Well said Shannon. Luckily, those of us who have continued to handle forward mortgages are already used to these requirements and have even had to handle the changes that the CFPB has put in place and made more documentation necessary even on regular mortgages. As you said, “it’s not waht it used to be” but explaining that the times we are in simply requires a little bit more documentation and being upfront about it will alleviate the concerns. My biggest concern is the number of reverse borrowers I now will not be able to help. I will really feel for them and their families.
The pendalum always swings to the excess unfortunately the reverse mortgage industry, HUD and FHA had there “heads stuck in the sand” and know the extremes to offset that are our new mandates. The consumer on the lowest rung ususally pays the price…alas. So we move on educating our centers of influence to remain deligent and proactive in their early conversations with prospective borrowers.
bunch of good comments,,,,,,,the only one that is not 100% ,,,,,,,,that is not sand they
have there heads stuck in,,,,cliff