FIT for Reverse Mortgage Lenders, part 1

 

 FIT Is All about Questions

 

It is a new day in HECM counseling (and lending) in America.

Beginning in September 2010, HUD is mandating a series of extra questions HECM counselors must ask reverse mortgage prospects during the mandatory counseling session before the loan application interview with a lender. These questions and processes are packaged as Financial Interview Tool or FIT.

Along with FIT, HUD is also requiring HECM counselors to do a benefits audit for seniors, using a national online resource called BenefitsCheckUp (BCU). Across the country, there are public and private benefit programs for seniors with limited means. For those who qualify, these programs could supplement reverse mortgage cash or render it unnecessary altogether, preserving it for when it is really needed.

National Council on Aging (NCOA), a HUD HECM counseling intermediary since 2007, created these innovations, results of its extensive experience exclusively serving seniors.

Lending, including reverse mortgage lending, is over-weighted in left-brain skills and processes and severely under-weighted in right-brain insights and perspective. The FIT questions are designed to correct this structural intellectual imbalance and bring about a more holistic or whole-person approach to HECM counseling (and lending).

The FIT/BCU approach has been used through the NCOA national network since 2007, and NCOA’s data and experience show it has been a success with seniors. Like any good organization attuned to good ideas and best practices, HUD got wind of FIT and BCU, studied them, and adopted them for its own ends: protect seniors and manage its insurance business risks at FHA.

A review of some initial industry participants’ comments suggests there are some misconceptions about FIT (and BCU). With focus on FIT questions and risk-factors, the series I begin with this post will explain these new realities in reverse mortgage lending in the age of Dodd-Frank Act.

We will look at one FIT question and one risk factor at a time and draw lessons that can be applied to HECM lending. Although FIT is a HECM counseling tool, I believe its lessons can help lenders manage reputation, litigation, and financial risks uniquely associated with HECM lending.

What do we intend to achieve with the “FIT for Reverse Mortgage Lenders” series? Here are four goals:

  • Address FIT misconceptions among lenders and originators and promote understanding;
  • Sensitize lenders and originators to some of the soft risks in HECM lending;
  • Promote a holistic or whole-person approach to HECM lending in the era of Dodd-Frank Act;
  • Advance the idea that protecting FHA’s HECM Insurance Fund from losses is the business of every industry participant because, as the insurance fund goes, so goes the industry’s fortunes.

Again, our emphasis in the series will be on FIT questions, because FIT is all about questions, the right questions.

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