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The Challenges of Diving into an Applicant’s Highly Personal Financial Information
From building trust or diving into one’s very personal financial data the financial assessment presents challenges and opportunities alike.
In marking the division of history one may refer to B.C. or A.D.. For the reverse mortgage industry we have NA and FA, no-assessment and financial assessment. That point in time can be marked as April 27th 2015 when HUD’s Financial Assessment guidelines went into effect forever changing the face of the Home Equity Conversion Mortgage program.
The in depth review of an applicant’s highly personal financial data has created a mental hurdle that many struggle to overcome…
Download a transcript of this episode here.
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5 Comments
This video is spot on. As an underwriter, we can only approve or deny based on the information given. If the LO fails to get all the correct info, they are doing their borrower a disservice. They may have been well qualified but if a LO is too timid to ask the right questions we will never know and they will never qualify. With Financial Assessment the origination has never been more important.
Kathryn,
While your comment is spot on, it lacks empathy and any role underwriting should have in the solution.
None of our operations are so large that we do not communicate with our colleagues. It would seem underwriters especially in companies smaller than AAG could easily notice patterns in their own retail originators that would demand notification to the supervisor of those retail originators that perhaps a particular originator needs further training in financial assessment gathering standards and practices since it seems too many of his applications do not qualify.
It would seem that the greatest problems you describe would arise from the TPOs whose stake in our industry is minor since their traits in this regard would be hard to track.
As expected with wealthier applicants, there seems to be far less need to dig into the financial situation of the borrower to come up with extenuating circumstances and compensating factors. With those who are not financially as well off or have not been as diligent about their financial situation as others, some of the questions seem offensive to many of the prospects. They really were not prepared for an in depth look at their circumstances.
Will subjectivity ruin the intended result of financial assessment?
The intended result of financial assessment was to gather sufficient evidence to demonstrate that the borrower will be able to meet property charge obligations throughout the life of the loan. If not, the analysis did not end there. Underwriting was then to consider if the appropriate LESA would result in a workable solution for the borrower. The term of art surrounding this consideration was “sustainability.”
LESAs can be waived if there are sufficient extenuating circumstances (in the case of failing the willingness component of financial assessment) or sufficient compensating factors (if the failure was for lack of capacity). It is in this determination where those with a more sympathetic outlook can intentionally or unintentionally defeat the whole purpose of financial assessment. Yet is this not what is actually needed in today’s environment?
After 9/29/2013, we have seen HECM demand shift from the needs based to less needy seniors. What changed the base of our demand was the lowering of principal limits (as modified on 8/4/2014), the restructuring of upfront MIP, and the addition of a limitation on first year disbursements. Based on what HUD has reported about these changes, many of us believe that the average applicant today is less likely to default on their property charge obligations than the average applicant before 9/30/2013. Based on this belief, there is no need for financial assessment to be interpreted as harshly today as would have been needed before 9/30/2013, especially before 4/1/2013 when applicants could still choose fixed rate Standards.
So even though some interpret the subjective nature of evaluating extenuating circumstances and compensating factors as opening the door to more defaults, yet with the changes since 9/29/2013, maybe that is not such a bad idea. Maybe there is less need for rejection of applications than before 9/30/2013.
(The opinions expressed in this comment are not necessarily those of RMS or its affiliates.)
When speaking with prospects I always work in the phrase “If you qualify” and usually several times. This simple phrase let’s them know that there is going to be some sort of qualifying or assessment that is going to take place. Once they know this, if they want to move forward, they “want” to qualify and it’s usually pretty easy to get information from them.
If, as you should be, are attempting to “help” your clients, it is your duty and responsibility to elicit as much information as needed to get them qualified. Unfortunately, not everyone will qualify but it’s better to know sooner than later for everyone involved.
Hope this helps somebody.