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Financial Assessment: Industry Asks for Changes


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NRMLA Requests Changes & Delay in Implementing Financial Assessment
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Home Equity Conversion Mortgage Program

The Financial Assessment is a game-changer for the Home Equity Conversion Mortgage Program. For the first time since the program’s inception in 1989 the reverse mortgage will be treated like any other FHA mortgage…that is underwriting to reduce risk of borrower default. Here are a few highlights from the letter. 1- In the process of measuring a borrower’s financial capacity to meet the obligations of paying ongoing property charges the assessment excludes the income of non-borrowing spouses or family members not listed on the loan yet HUD requires the inclusion of jointly held debt (even non-borrowing spouses). NRMLA asks for an even playing field including this household income if household debt is counted against their capacity to repay. 2- Available proceeds (line of credit) or future tenure payments after closing should be included when calculating the borrowers future income which helps determine their capacity to meet property obligations.



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  1. I agree with HUD that discounting of assets should go beyond current market values or consideration of taxes and the effects of dissipation on the discounted assets.

    To this day we still hear about seniors who are in bad financial situations because the values of their retirement asset pools have not recovered or the value of their individually owned portfolios need to be recovered. That flies in the face of the markets hitting their highest levels ever in the last few months and the NASDAQ reaching its highest levels in thirteen years.

    What the anecdotal evidence of asset values still not recovering among seniors indicates is that seniors as a whole are less adaptable and capable of investing so that the values of the assets being discounted can be recovered; with all of the rhetoric on this subject presented by this industry to the financial planning community we look very hypocritical by stating there absolutely should be no discounting whatsoever..

    We may argue with HUD about the steep discounting percentages they want to implement but it is very hard to argue with the principles they are applying in reaching the conclusion that discounting should apply.

    (The opinions expressed in this comment is not necessarily those of RMS or its affiliates.)

  2. We do not do ourselves any real service by requesting a delay of any kind. Remember it is the industry which has been complaining about not having a standardized financial assessment and having no ability to adjust HECMs so that those with less than flawless property service payment records can still obtain HECMs but in a way which will lead to success rather than failure as to property service payment defaults. HUD has answered that request.

    While we may not like the results, we still need a definite deadline for implementation if our complaints are to have any real legitimacy. NRMLA gave its suggested guidelines last year and HUD rejected several of them. So it is not as if HUD did financial assessment without requesting industry input. HUD did not like some of the NRMLA suggestions, what is wrong with that? While it is a great idea to appeal to HUD to look at them once again, asking for a delay three months in advance of implementation really calls into question our commitment to financial assessment.

    Were we serious or not about the need for standardized industry financial assessment for HECMs? Is it better to have a less than perfect financial assessment in place or wait for a slightly better one later? If we are really worried about the fate of seniors who obtain HECMs, then some form of financial assessment seems better than none.

  3. I think they should delay the financial assessment until we know the impact of the September 30 changes on the reverse mortgage business. Will the loan volume drop by 60-80% due to the September 30 changes?

    • Ray,

      Respectfully, I fully disagree. Delaying or not delaying financial assessment should have absolutely nothing to do with the changes which took place on 9/30/2013. The earliest we will see meaningful endorsement figures on the new HECMs will not be until January. It will not be until near of the end of the third quarter of fiscal 2014 that there will be sufficient information to really get the full impact of Mortgagee Letter 2013-27 and determine its general trends.

      Mortgagee Letter 2013-27 was created to stop the excessive losses to the MMI Fund caused by the high PLFs related to Standards and mitigate the problem of full draws of all proceeds in year one. The purpose of Mortgagee Letter 2013-28 is much different; it is to mitigate property service payment defaults.

      Based on fiscal 2012 endorsements, Mortgagee Letter 2013-27 is to mitigate losses to the MMI Fund from over 70% of all endorsements. On the hand Mortgagee Letter 2013-28 is to mitigate property service payment defaults of about 12% of those endorsements.

      What the two step delay in implementation permits is first an approximate eight month look at the impact of Mortgagee Letter 2013-27. If either of these Mortgagee Letters do as intended, it is believed that Mortgagee Letter 2013-27 will have the most devastating impact on lender revenues. So it is hoped that by May 2014, we will see meaningful trend information resulting from Mortgagee Letter 2013-27 which we can take to HUD and prove that the reductions and restrictions created by that Mortgage Letter were far too great.

      The industry is very concerned about its image when we will have to start foreclosing on grandmas and granddads with property service payment defaults. If at the same time we have Mortgagee Letter 2013-28 fully implemented, the hope is that the implementation will help blunt some of the negative reactions to those foreclosures. Delaying Mortgagee Letter 2013-28 would be a huge mistake, especially if HUD delayed the implementation because WE asked.

      Do I expect revenues will be horrible this fiscal year? Absolutely!!! The worst mistake our leaders could make next week at the NRMLA Convention is to obscure or euphemize the expected impact of the two Mortgagee Letters. If anything attendees should be wearing sackcloth and ashes and drinking bottled water rather than wearing their “Sunday” best and partying it up in New Orleans. But putting my money where my mouth is, if history and the ostrich behavior of our leaders means anything, I expect the latter will prevail. Our leaders always seem to be ultra optimists loving parties over presenting realistic assessments.

      What I expect we will see by the end of this fiscal year is huge reductions in operations and administrative staffs as originators add on other sources of compensation or move out of the industry altogether.

  4. I agree with the observations of NRMLA about the FHA ‘s proposed financial assessment requirements. They are in need of adjustments in order to really be fair and accomplish their designed purpose. But I think the decision to delay implementation was a mistake.

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