Reverse Mortgage Funding, LLC (RMF) is committed to developing the reverse mortgage market with a simplified new approach to the borrower qualification process. This is stated in a presentation made by the company during the National Reverse Mortgage Lenders’ (NRMLA) Virtual Summer Meeting this month, as well as in direct conversations with company staff about the change.
Although the scope is currently limited for clients looking for Equity Elite’s proprietary reverse mortgage product, a new procedure used to determine a borrower’s eligibility has been determined following industry-wide negotiations and with borrowers to improve terms of service at both ends. : for both the loan officer and the borrower. It can also help shorten the paperwork collection process by monitoring the eligibility of the borrower prior to obtaining information for more traditional sources of income.
Efficiency in qualification
One of the goals of the new qualification process being undertaken by RMF is to improve the efficiency of the qualification process, which could have the potential benefit of increasing the satisfaction of both the borrower and the loan officer. By meeting all the requirements for a reverse mortgage and looking for ways to simplify the process, a pattern began to emerge in the “typical” qualification process that could be eliminated. This was stated by Joe DeMarkey, head of strategic business development at RMF in an interview with RMD.
“I would think about it – at the highest level – so I think that most loan officers approached the right borrowers not necessarily the wrong way, but not the most efficient way,” DeMarkey says to RMD.
After obtaining the most basic information about the borrower, including name, age, home ownership and mortgage status, the typical way a borrower talks to a borrower during the qualification process usually quickly transitions to what DeMarkey calls “regular sources of income.” These sources usually include things like social security payments, retirement benefits, whether or not the client continues to work actively, and if so, what his or her salary is and the form it takes.
“Interestingly, the documentation requirements for these ‘traditional sources of income’ are usually the most voluminous and the hardest to get from the borrower,” DeMarkey says. “Think about someone’s tax return or trying to get someone’s Social Security letter or paperwork to prove your retirement income. They are usually the hardest to get. “
This is especially true of individuals with a higher level of home equity, who are more likely to seek a private reverse mortgage than a traditional home equity conversion mortgage (HECM), because higher lending limits are generally better suited for those with who could be a more expensive home. , says DeMarkey. However, once the conversation about traditional income is complete, the lender will likely move on to other topics in the qualification process, including other assets such as retirement or brokerage accounts.
This is where the “inversion” of the qualifying conversation begins, increasing the potential efficiency of the process.
Starting at the traditional end
When a borrower enters applicable income and asset information, most of the time the loan officer’s loan disbursement (LOS) system helps to visualize when the borrower reaches the qualifying threshold.
“All of these lending systems help the loan officer so that once the borrower is qualified, they will know if they have contributed enough income to the lending system in which the borrower is qualified,” DeMarkey says. “They will know that the borrower is qualified. They don’t need to go further. “
Without enough traditional sources of income or enough assets to squander them, the initiator will naturally turn to the loan structure offered to the client. So the typical qualification process, which starts with a traditional income to move to assets and then ends up wasting the proceeds, needs to be changed, DeMarkey says.
“We think they should change the order of these three categories,” he explains. “They have to start by looking at the waste of income, because there is absolutely no documentary requirement from the borrower so that we can waste the loan proceeds. In other words, what is the principal limit left after we have paid all the obligatory obligations that the borrower may have? Is there enough unused income that, if we squander over the borrower’s life expectancy, does it meet the criteria by squandering only loan proceeds? If they do, that’s fantastic news. “
There is no longer any additional documentation needed to support a client’s traditional sources of income, nor is there a need to disperse the assets they might have, as the dispersal of income alone can qualify the borrower. According to DeMarkey, such a scenario provides optimal results for both the borrower and the loan officer.
In cases where this may not be enough to qualify, the second recommended step for the transition is talking about assets, as the required supporting documents are still far less than what would normally be required compared to regular sources of income, he explains.
“If a [the borrower] there was 401K, all we need is their last quarterly report, ”he says. “Or, if they had a brokerage account with Merrill Lynch, we just need the latest quarterly report. If this is a savings account, we only need the last two monthly statements. Documenting assets is much easier than documenting income. Finally, if the borrower is still not qualified with respect to revenue and waste of assets, then [the loan officer can] draw their attention to traditional sources of income ”.
Potential HECM Applications in a Broader Industry
While this is a change in the way RMF plans to conduct qualification negotiations with Equity Elite borrowers, there is nothing that would limit the use of this same form of process for HECM borrowers. It would make more sense to focus on the private side, DeMarkey said.
“This methodology that I just described to you does not only apply to Equity Elite, it also applies to HECM,” he says. “Our hypothesis is that since proprietary products are more commonly used by wealthier people, the revenue-assets-income path is likely to be a much more efficient process for them than HECM, which is often overlooked. – but not always – by a needs-based borrower who may not have a higher net worth. They may not have many disposable assets to squander. So we thought about it specifically in relation to Equity Elite. “
This is a method that can be used by both RMF’s own dedicated retail loan officers and third-party partners (TPOs), DeMarkey said. Since the intent is focused on improving the quality of service to the borrower and the organization, as well as improving the timing of underwriting and transactions, DeMarkey hopes that some of the internal qualification procedures may change when they see the impact this procedure may have.
“I want each of our broker partners to use their back office more efficiently,” he says. “It’s good for them, it’s good for us, that’s good for the borrowers. Again, I think that improved borrower experience and improved operating and underwriting operations, turnaround times and efficiencies that apply to the entire ecosystem of our industry, be it a broker, closed-end loan vendor or lead agent, is helping everyone. ”