Assessment the Final Ripple from Housing Crash - Skip to content

Assessment the Final Ripple from Housing Crash


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New Assessment Addresses Problems of the Past while Future Holds Possible Changes

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Today marks the beginning of a new era for the Home Equity Conversion Mortgage: the Financial Assessment. As you watch today’s episode you are faced with an entirely new set of guidelines to qualify prospective reverse mortgage borrowers.

The assessment is one of the last ripple effects resulting from the housing crash. HECM defaults began to swell in 2010 hitting FHA’s Mutual Mortgage Insurance Fund and raising questions about the program’s long-term financial viability.

First a little perspective. One factor contributing to HECM defaults before credit history or financial capacity was measured was the structure of the loans being written. In other words, the fixed rate, full distribution HECM loan. Many borrowers faced with plummeting home values who already spent the proceeds from the loan were reluctant to pay their property taxes and homeowner’s insurance. Even worse there were no funds left to cure the default. Some homeowners may have thought why sink any money into my home when it’s value has dropped while overlooking the risks of default and foreclosure…

Download a transcript of this episode here.

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  1. I am very interested but have little hope for this program. If I remember correctly a version of FA has been tried before and failed. I have yet to find a loan officer that likes this plan and I have been told that foreclosures were small as a percentage of loans made by FHA. I’d like to know the truth. Meanwhile I and many others will try and help as many as we can, with as much production as we can. Perhaps its mostly a state of mind for both borrower and loan officer.????

    • Boyd,

      Stop asking others to do your homework. When you do not find the answer yourself, you are left with a right direction in a rudderless boat in a swamp full of alligators.

      No one has tried THIS form of financial assessment. Yeah, some will contest that MetLife did. Well, if less than ninety days is a real trial period, one could argue MetLife did but it had nothing to do with LESAs or loan modification. It was a pass or fail system only.

      It is a shame to hear that no loan officers you know are for financial assessment. If HUD had come up with this policy five or more years ago, there is a high probability that Wells Fargo, Bank of America, and most likely MetLife Bank would still be with us today.

      The financial assessment of today is too late to be effective without creating far too much collateral damage. After implementing lower principal limit factors and adding a first year disbursement limitation eighteen months ago, the fully funded LESA seems far too draconian. But since we have what we got, it is up to us to convince HUD to tweak and even change various aspects of financial assessment as we can gather the facts needed to demonstrate the rightful concerns of prospects and our own.

  2. Before dreaming about future days of less stringent financial assessment, let us realistically analyze where we are and what is happening right now.

    Sales leaders everywhere were promising that HUD had no major policy changes in store for us for at least the near term and most likely much longer. Well, guess what even before financial assessment could be officially implemented, HUD comes out with two new Mortgagee Letters dedicated solely to HECMs; that’s right two new Mortgagee Letters (2015-10 and 2015-11) dealing only with HECMs were posted last Friday.

    So are sales leaders are as much in the dark as the rest of us? The answer should be obvious. Are they using optimism in the hopes of keeping us in line? Are they acting like they know things they do not? Why aren’t they helping work through financial assessment?

    Financial assessment may be tweaked but not anytime soon. The realistic position is that HUD has mandated financial assessment and now it is up to us to work with our customers in a manner that will reduce not only the borrower anxiety and effort related to financial assessment but also their exposure to LESAs through discovering compensating factors (CFs) and extenuating circumstances (ECs). Knowing how various underwriters will respond to both CFs and ECs is imperative to providing the best service you can to prospects. And do not forget to appeal decisions that seem consistent with the new rules or prior subjective decisions.

    Financial assessment will be another way that good HECM “salespeople” will separate themselves from the flock. This is not a matter of educating borrowers but one of knowing how to work financial assessment so that marginal cases will close in your favor.

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