A Boiled Frog?

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“I’ve seen my share of boiled frogs”

One industry titan said of struggling industries “I’ve seen my share of boiled frogs”.

While resilient the reverse mortgage industry has struggled since 2009. Battered by the storms of the housing crash, principal limit reductions, numerous product changes and the financial assessment those who remain may feel like they have been slowly boiled as the heat of change is continually turned up.

reverse mortgage newsHowever amidst upheaval there is opportunity; the opportunity to revamp our approach, improve our internal processes and create new efficiencies in doing business. The fact is the paradigms that applied to our industry just a few short years ago no longer apply. To adapt and thrive both industry leaders and loan officers should examine the steps necessary for long term survival and success.

Here are some take-aways I’ve found in watching how other industries have dealt with chaos and adversity.

1- Throw away faulty perceptions. That’s right, throw them away. From needs-based borrowers, easy qualification standards and quick…

 
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1 comment

James E. Veale, CPA, MBT August 14, 2015 at 12:24 pm

Once again Shannon supplied a lot of practical help (i.e. grease for skidding the rails) on originating. Yet when it came to crafting a change story versus throwing away faulty perceptions for the sake of accurate communications with our prospects, when it comes to financial assessment we need to drop the story that HUD wanted financial assessment “to keep the program on a sound financial footing.

For example, recently an originator went online with a loan he lost due solely to lack of sustainability. The home was worth $960,000. which is over 50% more than the lending limit. There were no problems with the property, its location, or its condition. The $334,500 cushion (that is the value of the home in excess of the lending limit) means there is almost no way that the MMI Fund has any potential loss on this home where loss is defined as the balance due at termination exceeding the value of the home at that time. So who would deny this loan due to the value or condition of the property? It is one of the least likely problematic problems for the MMI Fund and this was not the cause of why this loan was denied.

The Principal Limit was sufficient to pay off all mandatory obligations and provide a fully funded LESA. The borrower was 62 and his non-borrowing wife was in her mid fifties. The wife made about $7,000 per year. There were $170,000 in other assets but the husband was bringing nothing in the way of income into the family. While the couple passed the willingness test, its MRIS was so bad that the Partially Funded LESA was greater than 75% of the Fully Funded LESA.

Since November of last year I believed that the situation above would result in an endorsed HECM. Even our area vice president held a training session with us stating that as long as the prospect would accept the required LESA and the Principal Limit could pay off all mandatory obligations and fund any required LESA there is no way the loan could be declined.

After the first decline, the applicant provided a letter of explanation presenting a financial plan on how the applicant would wait to take Social Security at 66 so that his benefits would be 33 and 1/3rd percent higher than they would be now since he was just 62. The underwriter brought in the investor who the originator called very reputable. Both the underwriter and the investor were so concerned about HUD issuing a Notice of Return (i.e. rejection) on this mortgage that the decision was made to deny the application on the basis that the positive financial situation of the applicant was not sustainable even if the applicant got the HECM.

HUD did not create financial assessment to protect the MMI Fund. HUD created financial assessment to protect applicants from harming themselves. For the sake of accuracy with prospects we need to stop crafting the story that HUD created financial assessment to keep (or to put back) the program on a sound financial footing.

HUD lowered principal limits, added first year disbursements limitations, and restructured MIP to keep (or to put back) the program on a sound financial footing. These things protect the MMI Fund. Financial assessment on the other hand was created to protect applicants from financial failure despite getting the HECM.

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