Recently, a seasoned colleague and I had a chance to catch up and walk down the HECM memory lane. Fondly, we remembered the time when our responses to borrower inquiries regarding HECM product options, features, benefits, costs, pricing, pre-qualification and origination were less complicated and largely standardized. It was a simple product back then. My colleague summarized the offering quite succinctly, saying it was as easy as, “I have red shoes.” There was nothing more to it.
I thought his comment presented an interesting perspective. Basically, the HECM portfolio was, for most of its existence, a singular product type: a pool of adjustable-rate loans. The rapid rise of the fixed-rate product impacted a 20-plus-year history of ARM product availability, and now that we’ve seen its rapid fall we seem to have returned to offering only red shoes again.
Unfortunately, this new pair of red shoes just isn’t the same. The former “one size fits all” sales and manufacturing specs of the initial red shoes have been drastically altered, impacted by a continuous stream of product enhancements, safeguards, more focused design and recognition of (or recovery from?) manufacturing defects that arose in the past few years.
In other words, while today’s HECM product reflects a return to the product offering of the past, today’s eligibility and qualification guidelines have significantly changed. Continuing efforts to correct manufacturing defects to date have resulted in a substantial increase in originator uncertainty as to who and what actually qualifies for a HECM transaction. Additional changes to guidelines and proceeds availability are also being contemplated in the near future.
Overall, there has been a noticeable increase in the number and complexity of “scenario” inquiries to underwriters. Many of these
scenario assistance queries are the result of the implementation of new overlays and lender guideline interpretations. Further complication has arisen. While many of the overlays equate to hard and fast guideline changes, there is a gray area in that borrower ineligibility could be offset if the lender grants an exception based on certain supporting or mitigating circumstances and with the proper documentation.
Addressing scenario or exception requests has increased underwriter frustration, because in many of these situations the full file is not provided to the underwriter for review. Subsequently, borrowers who were hopeful that they would receive an exception have not been properly prepared for the fact that all of their information and documentation presented must also “grid.” Denial of the file for reasons other than an exception complicates borrower and market acceptance of the reverse mortgage product, which gives rise to an additional concern.
Because underwriting turn-times may be impacted and an exception review process may cause additional delays, originators are urged to keep on top of changing or amended guidelines. Setting borrower expectations, gathering complete information and documentation, and communicating accurate file
The industry goal has not changed: We still aim to provide an option for older Americans to remain in their homes and maintain financial independence. But perhaps we moved too far from the original product design. I wonder if sometimes we are not our own worst enemy when it comes to trying to meet everyone’s needs.
Yes, Mr. and Mrs. Borrower, I have red shoes. Let’s just hope that our brief move to enhance our line of simple red shoes did not cause the product line to ultimately be discontinued due to manufacturing defects.