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Many Originators Seeking Clearer Guidance Under Assessment
Your applicant’s credit history isn’t so rosey. A smattering of late payments on credit accounts, an overdue property tax installment or problematic medical bills. Such issues often require an explanation of extenuating circumstances.
The HECM Financial Assessment has transformed the process of originating reverse mortgages and consequently complications will arise, often around the issue of extenuating circumstances. Extenuating circumstances put quite simply are factors that explain the underlying reasons for blemishes in the applicant’s credit history. This is key as the credit history and payments help determine the borrower’s ‘willingness and capacity’ to meet the ongoing obligations of the loan.
HUD notes that lenders must make a “connection between the specific occurrence(s) and the measurable impact on the occurrence(s) on the mortgagor’s finances”. Quite honestly it is a subjective process.
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4 Comments
Good presentation my friend!
John A. Smaldon
Thank you John!
The one thing missing in all of the complaints was documentation. It is not enough to explain the situation away. Documentation must demonstrate why the explanation is palatable. Without sufficient, reliable, and independently verifiable documentation, explaining how circumstances were extenuating is little more than justification by words.
You must make your case from the documentation you provide. Remember you are not a credible source for the explanation since you generally have a financial stake in the outcome of any decision.
If possible let the documents allay concerns about the willingness of the borrower to pay. Make sure you provide only relevant documents that tell the story. Yet you need to connect the documents in your narrative and conclude that the documents make evident that the circumstances meet the criteria of an extenuating circumstance. Then conclude with a statement that the documents demonstrate that despite the willingness of the applicant … circumstances stood in the way … and there is no reasonable expectation of that occurring again.
Remember explanations without sufficient documented evidence is known as anecdote, not extenuating circumstances.
I would add that establishing the event that caused the lapse is insufficient. One must persuade that the event caused the lapse and yet despite the event, the borrower was willing to cure the situation but again the event resulted in circumstances where that could not be achieved.