Oftentimes we speed read. You know, skim across an article. We get the message but we can miss clues pointing to future trends. My reading this week on Reverse Mortgage Daily while preparing for my podcast left me a bit perplexed and somewhat taken back. Some say that credit underwriting could be part of all reverse mortgages…
in the future. The article seemingly was about Generation Mortgage’s new Jumbo product the “Plus”. OK, great the jumbo returning is a good sign for our industry. But what caught my attention, OK grabbed it was the comment of Generation Mortgage’s Chairman Jeff Lewis in an email to RMD. He said, “Eventually we will see credit underwriting in all reverse mortgage products. It is better for the guarantor/investor when the borrower has the means to stay current on their other obligations and maintain the home properly.”
In other words, Generation can stipulate a credit score requirement to satisfy investors their risk of T&I defaults (Tax & Insurance) would be minimal. Do you agree that we will see credit score criteria for government-insured HECMs in the future? Will this help reduce future technical defaults or only hurt the seniors who may have poor credit scores who need the product the most?
6 Comments
This is a great post! Thanks for sharing.
Thanks for sharing, thoughtful comments and good points made.
As an originator I find the use of FICO scores in qualifying seniors for HECMs a very disturbing idea, especially if such scores can have a negative impact on a senior getting a HECM. Such criteria has the scent of age discrimination.
The trouble with using FICO scores as a measure of the likely payment of taxes and insurance by borrowers is that most older seniors who pay their bills on time generally have lower FICO scores than younger seniors who also pay their bills timely. The reason is a lot of older seniors don’t need or use credit.
FICO scores measure the creditworthiness of an individual, not necessarily timely payments of non-credit related bills (like insurance, utilities, gardeners, etc.) or their ability to pay. Thus a lot of seniors who can pay their obligations timely could be excluded from HECM eligibility by using FICO scores as a significant test in measuring who might not pay their taxes and insurance timely.
Mortgage lenders look at issues much differently than HUD and FHA employees. While lenders look primarily at risk when designing their products, HUD/FHA must look at legislative intent and also at who arbitrary FICO score related rules might exclude.
Please do not misunderstand. While I appreciate having a strong proprietary product in the market, I do not agree, endorse, or approve of its standards being arbitrarily applied to HECMs. FICO scores should not be used in determining who can and cannot pay insurance and real estate taxes for HECM lending determination purposes.
Jim,
Very insightful comments, especially why many seniors have lower credit scores. I sincerely hope we never see credit underwriting on HECMs. Talk about hurting the very people the program was created for…
FYI, The new Jumbo product is offered by Generation Mortgage, not Genworth.
Eric,
Thanks for the heads up. Made the correction to Generation Mortgage. Many thanks….