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Assessing the Impact


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What Impact Will the Financial Assessment Have on our Industry?

reverse mortgage newsThe two biggest words in our industry today…Financial Assessment. The question is what fallout can we anticipate once the assessment goes into effect in March? A recent article in Reverse Mortgage Daily looks at the potential impact finding both optimistic and pessimistic predictions.

Lenders who originate traditional mortgages in addition to reverse are much more adept to rapid change, documentation requirements and risk management. Dan Harder, president of 1st Reverse Mortgage USA whose parent company Cherry Creek Mortgage originates traditional mortgages said “Our belief is we’re probably not going to see more than a 3-5% impact, which is minimal to us. Because of our background in forward mortgage lending, from an underwriting and risk management standpoint, philosophically it’s kind of a non-event for us.”

Contrast that with lenders and originators steeped in our long tradition of no credit qualifications an minimal underwriting and the viewpoint begins to shift quickly…

Download a transcript of this episode here.

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Editor in Chief:
As a prominent commentator and Editor in Chief at, Shannon Hicks has played a pivotal role in reshaping the conversation around reverse mortgages. His unique perspectives and deep understanding of the industry have not only educated countless readers but has also contributed to introducing practical strategies utilizing housing wealth with a reverse mortgage.
Shannon’s journey into the world of reverse mortgages began in 2002 as an originator and his prior work in the financial services industry. Shannon has been covering reverse mortgage news stories since 2008 when he launched the podcast HECMWorld Weekly. Later, in 2010 he began producing the weekly video series The Industry Leader Update and Friday’s Food for Thought.
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  1. My 21 years of experience in Reverse mortgages with a total of 34 in the Mortgage business tells me there will be substantial impact. The typical Reverse Mortgage borrower has a Mortgage in place, poor credit and low income requiring a LESA. The problem is that there is not enough proceeds to cover the LESA and Mortgage payoff, especially the younger borrower in their 60’s.
    How can you have a simulation of past borrowers that you did not verify income and credit, my bet is a 30% plus reduction.

    • Mark,

      On everything except the percentage lost, our outlook is the same.

      Right now, I must admit that there is insufficient data to make reasonable estimates of what the overall loss to business will be. So your guess on the percentage loss is about as good as it gets.

    • Mark,

      On everything except the percentage lost, our outlook is the same.

      Right now, I must admit that there is insufficient data to make reasonable estimates of what the overall loss to business will be. So your guess on the percentage loss is about as good as it gets.

  2. Reduction in volume is only part of the story. Increased costs is another significant unavoidable consequence with increased staffing and increased processing man hours per loan.
    Profitability has already been compromised greatly by the increasing costs of compliance and financial assessment will only exacerbate the problem.
    I would like to see a Cost Analysis performed independently of the true cost of production.

  3. hecmvet,

    You are right on point in your first and last paragraphs but your paragraph which starts out as follows is not as strong: “Profitability has already been….”

    Yes, there has been a slight drop in profitability due to more compliance requirements BUT the biggest drop in profits is from one primary source and one primary source alone, Mortgagee Letter 2013-27. While endorsements have dropped almost 15% as a result of this mortgagee letter, the drop in initial UPBs is on a per HECM basis about 30%, creating a total loss in revenues of about 40% in the year of initial funding of the related HECMs on an industry wide basis since about November or December 2014. Individual companies no doubt have been doing better and worse. Do you believe that the cost of the compliance issues since 10/1/2008 altogether have been one-tenth that amount (i.e. 4% of industry revenues)?

    So if Mortgagee Letter 2013-27 caused a 40% drop in revenues in the year of initial funding, what do you think it has done to profits? Yet most lenders believe that in later years their profits on the current type of HECMs (Savers v.2 and v.3) will rise significantly. Why? Revenues from tails (draws that occur after initial funding) per HECM will be much higher due to 1) the first year disbursement limitation and 2) the higher percentage of adjustable rate HECMs being originated. Since tails have no commissions associated with them (in other industries known as residuals), profits on Savers v.2 and v.3 will be much higher in the years following initial funding.

    Right now HECM lenders can make the case that 1) overall revenues have dropped and 2) that the majority of that loss is incurred in the year of initial funding, when explaining why commissions either must not rise or must go down. Yet in making that case, there is little way that retail originators can make a case for residuals since retail originators have no one representing us the way that lenders have NRMLA.

  4. Shannon,

    Good video! I have been taking as many courses as I can about the FA ruling as well as the NBS ruling.

    One problem, such as with the NBS ruling, HUD keeps changing the rules, in fact, they are making it more difficult to understand.

    On the FA ruling, I agree, those that are used to doing forward loans, especially VA loans are going to have a much easier time adapting.

    Here again, look at how many loan officers and processors as well as underwriters that have only been in the reverse mortgage space?

    These folks are going to have many problems, especially the one’s who are not educating themselves thoroughly!

    I see a lot of confusion in the beginning and those that have only been in the reverse mortgage space will incur a major drop in origination’s.

    I feel the industry has been offering many opportunities to participate in on line training for everyone in the business.

    If we all participate in as many of these on line training courses as we can, we will at least have a decent handle on things to come!

    John A. Smaldone

    • John,

      Now is the time to get prepared for Financial Assessment but unfortunately we are still dealing with at least four different policies on non-borrowing spouses. Beyond the three mortgagee letters posted in the last nine months, there is also the law which no one but AARP and the courts are dealing with. HUD is still trying to weasel out of its reckless policy of the past which could put them once again at war with AARP. HUD was so intimidated by the idea of going to the Supreme Court that it created a partial but inadequate policy found in Mortgagee Letter 2015-03 barely in line with the Court of Appeals decision but not expansive enough to encompass the rights found in the law itself for non-borrowing spouses. Let us hope AARP will dig in its feet and once again lead the legal fight to correct what it is that HUD has erroneously created.

      It is disgraceful how the industry handled the issue and how some inside the industry attacked these seniors for availing themselves of the courts just to exercise protections granted by Congress. We need to root out this kind of bias against the spouses of our borrowers. We as an industry should have supported these folks instead of siding with HUD.

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