FIT for Reverse Mortgage Lenders, part 3


Why Lenders Must Be FIT Smart


Needs. Immediate needs drive most reverse mortgage lending. Everyone knows that.

What everyone may not know is that lending to meet immediate needs could be very risky for seniors and for lenders in the absence of good intelligence about seniors’ long-run needs and goals.

FIT is about digging deeper for better HECM prospect intelligence to inform the lending decision-making. This is the critical insight that persuaded HUD to impose NCOA’s innovations in the new HECM counseling protocol.

What is in FIT for reverse mortgage lenders (a reader asked in response to part two)? This post will show why lenders should be FIT savvy.

To help seniors make better HECM decisions, lenders need to be better informed about seniors, and FIT gives them that extra intelligence they do not have now.

Every HECM prospect counseled after September 11, 2010 will be given a FIT summary printout, which will show “yellow flag” issues (risk factors) raised in counseling and their implications for a borrower to “fully benefit from a reverse mortgage.”

Lenders can use “yellow flag” issues as cues for questions and conversation with prospects. Let’s look at a “yellow flag”: living alone.

This factor could prompt questions such as: How much help do you have with your daily activities, Mrs. Akuna? Who can you call when your health changes suddenly? Do you feel lonely and isolated? One implication for a live-alone is that they may be too dependent on the reverse mortgage cash.

As NCOA’s Barbara Stucki said, “By themselves, each of these issues may not be a risk, but they can add up.”

Add poor health to living alone, and you have prospects whose financial needs may outrun their expectations, hurting their ability to meet borrower obligations such as paying property taxes and homeowner’s insurance.

FIT could also help lenders manage reputation, litigation, and financial risks by giving them early warning and opportunities to deal with risks upfront. A FIT report might flag health issues; further conversation might uncover mental health issues. If they are issues involving the senior’s decision-making capacity, lender could work with counselor to refer prospect to mental health professionals.

A HECM lender’s failure to spot a co-borrower’s mental health problems caused a New York Supreme Court Judge to void a reverse mortgage in December 2009 (The Doar Matter).

Before you say, “This is not fair. We are lenders, not psychiatrists!” Here is the judge:

“…the burden of knowledge … must be shifted to the mortgagee [lender] when dealing with a reverse mortgage.”

It is possible a scathing GAO report to Congress on HECM counseling last June, the Doar decision, and its own insurance exposure pushed HUD toward FIT and other tighter rules in the new HECM protocol. Lenders ignore these developments at their peril.

Call it Atare’s first law of reverse mortgage lending: Know your borrowers beyond immediate needs. If you do not, courtrooms and newspapers’ pages could be very expensive places to find out.

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