By releasing a recent statement in support of Home Equity Conversion Mortgage (HECM) lenders conducting a financial assessment for borrowers, has the Federal Housing Administration put the ball back in the reverse mortgage industry’s court?
The financial assessment concept has been a topic of discussion for many months, with statements of support this year from HUD’s Vicky Bott in April, and more recently by Bott successors in the single family department at HUD. While the industry races to come up with a “best practice” for the financial assessment directed by the National Reverse Mortgage Lenders Association, it seemingly got its green light in the form of a letter published this month by Carol Galante, FHA acting commissioner.
The letter stated that “HUD’s HECM criteria represent the mandatory baseline requirements for approval of a HECM. HUD does not prohibit the inclusion of additional financial capacity and credit assessment criteria and processes in the origination and approval of HECM transactions.”
It this the statement the industry has been waiting for? Many in the past said lenders’ hands were tied and they had to accept qualifying loans until HUD submitted a statement in writing stating otherwise.
In coming to terms with the assessment, lenders have expressed different views. Some believe it is best to wait until HUD issues specific guidelines, while others think that the lenders are responsible for making sound loans and should do so in their own way in advance of a formal HUD rule.
Regardless, FHA has given the financial assessment the OK, and NRMLA has said a “best practice” is on the way.
Once that best practice is developed, does it solve the problem, or create additional lender discrepancies?
“I prefer that FHA issues tax and insurance underwriting guidelines similar to what they have for traditional loans,” one originator told RMD. “Otherwise lenders’ procedures could vary because some lenders may not go with what NRMLA recommends. Hopefully FHA is temporarily allowing lenders to adopt their own optional guidelines in an effort to avoid lender fallout until FHA is able to issue formal guidelines,” he said.
The industry’s development of a financial assessment has been pending a written statement from HUD, and now with that statement, the industry’s assessment is pending a decision by NRMLA, supported by industry members and discussion.
NRMLA’s board is scheduled to meet on the issue during its annual conference in Boston, beginning October 24.
Written by Elizabeth Ecker
