Reverse Mortgage Funding, LLC (RMF) aims to grow the reverse mortgage market by taking a new, streamlined approach to the borrower qualification process. That’s according to a presentation made by the company at the National Reverse Mortgage Lenders Association (NRMLA) virtual summer meeting this month, as well as direct conversations with company staff about the change.
Although currently limited to clients seeking the company’s proprietary reverse mortgage product “Equity Elite”, the new procedure used to determine borrower eligibility was determined after industry-wide conversations, as well. than with borrowers to improve the fitting experience at both ends. : for the loan officer as for the borrower. It can also help reduce the document collection process, observing the borrower’s eligibility before obtaining information on more conventional income sources.
Efficiency in qualification
One of the goals of the new qualification process that RMF is undertaking is to increase the efficiency of the qualification process, which has the potential benefit of increasing borrower and loan officer satisfaction. By observing all of the requirements that come with a reverse mortgage and looking for ways to simplify the process, a pattern in the “typical” qualifying process began to emerge that could be addressed. This is what Joe Demarkey, head of strategic business development at RMF said in an interview with RMD.
“The way I think about it – at the highest level – is that I think most loan officers approached eligible borrowers not necessarily in the wrong way, but not in the most efficient way,” Demarkey said. at RMD.
After getting the most basic information about the borrower, including name, age, ownership, and mortgage status, the typical way a sender talks with a borrower during the qualification process usually passes quickly. what Demarkey calls “conventional sources of income”. These sources usually include things like Social Security benefit payments, retirement payments, whether the client is still actively working or not, and if so, what their salary is and what form they are taking.
“It’s interesting that the documentation requirements for these ‘traditional sources of income’ are usually the most voluminous and are usually the hardest things to get from a borrower,” Demarkey explains. “Think about someone’s tax return or try to get a Social Security benefit award letter or documents from someone to justify your retirement income. These are generally the most difficult to obtain.
This is especially true for high net worth individuals, who are more likely to seek out a proprietary reverse mortgage than a traditional home equity conversion mortgage (HECM) because of the higher loan limits which are generally better suited for someone. who may have a higher value home. , Demarky said. However, once the traditional income conversation is over, a loan originator will likely move on to other topics during the qualification process, including other assets such as retirement or brokerage accounts.
This is where the “reversal” of the qualifying conversation begins to set in by making the process potentially more efficient.
Start with the traditional “end”
When a borrower enters the applicable income and asset information, most of the time, the loan origination system (LOS) of the loan officer will help visualize when a borrower reaches the qualifying threshold.
“All of these loan origination systems help the loan officer in that once the borrower is qualified, they will know if they have entered enough income into the loan origination system where the borrower is qualified, ”says Demarkey. “They will know the borrower is qualified. They don’t need to go any further.
Without enough traditional sources of income or enough assets to dissipate, the originator will naturally turn to the loan structure offered to the client. So the typical qualifying process of starting with traditional income before moving on to assets and then ending with product dissipations should be changed, Demarkey says.
“We think they should reverse the order of these three categories,” he explains. “They should start by looking at the dissipation of the products, because there is absolutely no documentation requirement from a borrower so that we can dissipate the loan proceeds.” In other words, what is the capital limit after paying any mandatory obligations the borrower might have? Is there enough unused proceeds that if we dissipate beyond the life expectancy of the borrower, are they eligible only with dissipating the loan proceeds? If they do, that’s great news.
There is no longer any additional documentation needed to support the client’s traditional revenue streams, nor to dissipate any assets they might have since dissipation of the product alone can qualify the borrower. Such a scenario provides an optimal outcome for both the borrower and the loan officer, explains Demarkey.
In cases where this may not be enough to qualify, the recommended second step is an asset conversation, as the accompanying documents required are still far less than what is typically required compared to conventional income sources, he explains.
“Yes [the borrower] had a 401K, all we need is their last quarterly statement, ”he says. “Or if they had a brokerage account with Merrill Lynch, we just need the latest quarterly statement. If it is a savings account, we would only need the last two monthly statements. It is much easier to document assets than it is to document income. And finally, if the borrower is still not qualified with the proceeds and the dissipation of assets, then [the loan officer can] turn their attention to traditional sources of income.
Potential application to HECM, wider industry
While this is a change in how RMF plans to have its qualifying conversations with Equity Elite borrowers, nothing limits this same process form used for HECM borrowers. It may make a little more sense to focus on the owner side, Demarkey says.
“This methodology that I have just described to you does not only apply to Equity Elite, it also applies to HECM,” he says. “Our assumption is that because proprietary products are most often purchased by high net worth individuals, the ‘products-assets-income’ path is likely to be a much more efficient process for them than HECM, which is often removed. – but not always – by the needs-based borrower who may not have a higher equity. They might not have a lot of assets available that can be dissipated. So we have thought of this specifically in relation to Equity Elite.
This is a method that can be used by RMF’s own corps of retail loan officers or by third-party origination partners (TPOs), Demarkey said. Since the intent is focused on improving the borrower experience and origination while also hopefully improving underwriting and operating times, Demarkey is hopeful that some internal procedures to qualification might change when they see what kind of impact this procedure can have.
“I want each of our broker partners to become more efficient with their back office,” he says. “It’s good for them, it’s good for us, it’s good for the borrowers. Again, I think the improved borrower and operating and underwriting experience, turnaround times and efficiency, which apply across the ecosystem in our industry, whether you are a broker, a closed loan seller, a senior agent, it helps everyone. “