Underwriting: The HECM Gold Rush

Written by Ralph Rosynek, as originally published in The Reverse Review.

As lenders settled into September’s month-end activities, few had time to notice Mortgagee Letter 2011-34, issued September 23, 2011. October recovery has set off strategy meetings for many companies, their focus being origination expansion opportunities not previously available under FHA/HUD guidelines.

Somewhat comparable to the historical rush for gold, many lenders are in the process of enhancing their origination expansion strategy at an accelerated rate. For many, searching the NMLS and other licensing websites to begin the process of origination licensing by seeking the most immediately accessible states with minimal requirements as a first “sort” was an initial task. Regardless of methodology, caution is strongly advised when applying for a new state license absent advice of counsel and, in some cases, without the benefit of a licensing consultant.

Specific changes in two key areas of licensed

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and approved HUD/FHA origination requirements are:

Office Facilities
An approved mortgagee may conduct loan origination and/or servicing activities from a home office, branch office, and/or direct lending branch office. All office facilities, regardless of type, must fully comply with all state licensing requirements in effect in the jurisdiction in which the office facility is located. In addition, a mortgagee’s home office must comply with the requirements set forth in paragraph 2-11.A of Handbook 4060.1, but HUD is no longer regulating the branch office facilities. Applicants are no longer required to submit evidence of acceptable home office facilities; the department will verify compliance with these requirements through any on-site visits to the home office. Paragraphs 2-11.B, C and D and 3.2.A.9 of Handbook 4060.1 are rescinded.

Single Family Loan Origination Lending Area
Paragraphs 2-19.A, 2-19.B and 5-8.C of Handbook 4060.1 are amended to expand the single-family origination lending area of each home office and registered branch office to include all HUD field office jurisdictions. Lenders are reminded they also must meet each state’s origination requirements. This origination lending area is also known as a lender’s Area Approved for Business (AAFB) and will be maintained at the HUD field office jurisdiction level in FHA’s system for implementation with any credit watch terminations. In addition, Exhibit 4155.2 12.E.2.a in Handbook 4155.2 titled “Single Family Originating Lending Areas” is rescinded.

It is interesting to note that no change was made to the HUD/FHA requirements for branch licensing reporting and fees. While the Mortgagee Letter opens more national possibilities for many lenders, the ability to originate FHA loans in a particular state remains tied to specific state licensing requirements. A conservative approach to researching state licensing requirements is imperative.

When determining which states to begin developing, a lender should consider a checklist of items and a detailed review for requirements that may not be elements for current licenses held, including:
-Specific brick-and-mortar requirements
-Specific state resident key personnel (i.e., branch manager)
-Specific license financial and experience levels based upon lending activities
-Specific state licensing application departments for planned activities (i.e., mortgage banking department, consumer finance department or, in the case of servicing, the debt collection licensing department)

Other considerations in developing an expansion strategy may include:
-State physical demographics with regard to flood plains, declared disaster areas, unusual zoning codes or requirements and rural area profiles
-Key state disclosure requirements including specific date or notification periods relating to HECM loans
-Prohibited activities relating to borrower access, mailing, telephone and face-to-face activities and information
-The availability of licensed originators to meet borrower requirements of face-to-face interview needs
-Lead generation resources
-The availability of counseling agencies
-Changes to application and closing package documents to reflect current state requirements
-The increase in company monitoring activities to maintain state compliance
-The increase in audit requirements, fees and other state filing documentation requirements
-Additional borrower comforts and safeguards established by state audit, regulatory and legislative law and guidance
-HMDA reporting activities
-Additional investor approvals for loan submission
-Annual license renewal requirements
-Specific company and individual financial benchmarks including calculations of tangible net worth
-Additional education and training requirements as well as prior individual experience, education credits and profile
-Telephone, data and record storage requirements
-Media, marketing and advertising state specific requirements
-Company license updates to printed materials, websites and other public channels

The completion of the application itself and the payment of the indicated fee may be the easiest part of an expansion strategy, as panning for gold is a long, tedious process that requires endurance and a continuous effort to produce results. No doubt these changes will bring the HECM product closer to the consumer in lesser-served states, and yes, increase a healthy competition to serve those older Americans.

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