An underwriter’s main task is to determine the credibility of the applicant and the risk of the loan. Several key factors must be considered during this process: the value, quality, and condition of the home; the client’s verifiable income sources, monthly housing expenditures and monthly non-housing debt obligations; the past payment history of these obligations; and the reserve funds needed in case the client’s income sources are threatened. These criteria are more commonly known as the three C’s: collateral, capacity and credit.
With the exception of the collateral, these factors don’t enter into the decision to approve a reverse mortgage nearly as often as they do on a traditional loan. As underwriters for the HECM product, the focus is on the property, which is the only collateral.
We understand that the approval of this loan allows us to provide a source of continuing income to our seniors that may be in desperate need of additional sources of income. We always keep in mind that, for the most part, we are reviewing loans for borrowers who purchased their homes in the ’70s and ’80s, or perhaps even earlier. The lending industry was quite different then, almost another world compared with the industry in the last 10 years. Back then, borrowers primarily applied with their local bank, had to meet stringent guidelines and didn’t have many loan products to choose from. This was a time when two incomes
were needed to qualify. Both members of the household had to work to be able to make enough money to afford this home. The good old days of the ’50s and ’60s, when the husband worked and the wife stayed home, were long gone.
If you jumped into a time machine and set the destination for 1980, you would find that a postage stamp cost 15 cents, a loaf of bread was 48 cents, a gallon of gas was about $1.03 (if you are old enough, you may remember the long gas lines and that you could only buy gas on odd or even days), a new car was about $5,400, and the average home was just over $86,000. How times have changed.
Once the clients moved into their new home, life was good. They felt sure the money they had socked away would last for their lifetime. They worked all of their lives in order to keep this home and have a nice little nest egg on which to retire.
Now, fast forward to today. The cost of living has not kept up with inflation. 401(k)s were depleted when the market crashed. Borrowers’ pensions may have been pulled out from under them, and to top it off, Social Security is not cutting it. For these borrowers, today’s economy has hit hard.
The middle class is getting squeezed from both ends. Advances in the medical field are helping clients live longer than the previous generation, meaning that more years are spent in retirement. All the while, the cost of living continues to increase while income sources dry up. There has to be a better way to finance retirement.
We believe that the HECM serves a valuable purpose. It allows some of our clients the ability to stay in their homes even when
the bank is threatening to take their houses away. It allows us to create affordability for the senior who may have lost a spouse and half of his income and doesn’t know if he will be able to stay in the home they purchased together. It allows borrowers additional income, whether it be monthly or a lump sum, to take that long-awaited vacation or just sock it away in the bank for that financial security we all desire.
As HECM underwriters, we can combine facts with compassion; most underwriting does not give us this opportunity. Our borrowers are savvy, interesting, opinionated and even quirky. They also recall how difficult it was to get their purchase loan and often worry too much about the process of loan approval. When they come to us it has usually been a difficult decision for them. It is up to the underwriter and their team of loan officers, processors and closers to try and make this process as quick and painless as possible. As underwriters, our job is simple, but not easy.
