The origins of the now-accepted HECM Financial Assessment

Despite it’s initial chilly industry reception the HECM Financial Assessment has been accepted- so said HUD’s Phil Caulfield. During his remarks at the NRMLA western regional meeting in Huntington Beach Caulfield emphasized the importance of the assessment stating “if we hand’t done this, there probably would be a HECM program. It’s that important”.

Necessity is the mother of invention. Several factors contributed to the genesis of the Financial Assessment, but the two most notable were lenders seeking to reduce the risk of paying delinquent property charges before or during the prolonged foreclosure process, and the reputation risk of issuing loans to borrowers who would likely default on property charges and the subsequent public fallout from the resulting foreclosure.

In October 2011, FHA issued guidance that HECM lenders could consider an applicant’s credit history and financial capacity- perhaps in response to pressure from lenders seeking a public statement. The largest HECM lenders weighed whether to launch their own financial assessment guidelines in the hopes that other lenders would follow suit. MetLife was the first to venture into the uncharted waters of HECM underwriting in November 2011.