the five comprehension questions (out of 10) HECM prospects are required to answer to be issued a certificate. The fuss over FIT is understandable as FIT is fairly new. It is change. Change has come to reverse mortgage counseling (and lending). Atare E. Agbamu is author of Think Reverse! and more than 140 articles on reverse mortgages. Since 2002, he writes the nationally-distributed column, “Forward on Reverse.” A former director of reverse mortgages at Minneapolis-based AdvisorNet Mortgage LLC, Agbamu has years of
FIT for Reverse Mortgage Lenders: Part II The Fuss Over FIT Lord HUD’s new FIT mandate for HECM counselors is giving some originators a fit
OCTOBER 2010
TENNESSEE MORTGAGE PROFESSIONAL MAGAZINE
NationalMortgageProfessional.com
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So, what is the fuss over FIT? We look at seven fusses and counter-fusses before moving on to the FIT risk factors and questions in other articles in the series. As designer of the Financial Interview Tool or FIT, the counter-fusses are the National Council on Aging (NCOA’s) responses to the fuss over FIT. Fuss # 1: FIT is addressing a demographic that no longer exists (field data says average HECM borrower age is now 63). Counter-Fuss: Younger borrowers are taking out fixed-rate Home Equity Conversion Mortgages (HECMs). As other products are developed, the demographic profile of borrowers may change again. FIT reminds seniors that their life circumstances may change rapidly because of an accident, illness or the loss of a spouse. Fuss #2: FIT is too invasive. Seniors might refuse to answer the questions if a third person (family or an advisor) is present. Counter-Fuss: Seniors can decide who will participate in the counseling session. Family members and advisors often find it difficult to discuss sensitive issues such as declining health with a senior. The FIT review may be a good opportunity to begin to address these issues and their implications for the senior’s well-being. Fuss #3: FIT is static; it does not anticipate changes. Counter-Fuss: As with many budgeting tools, FIT focuses on a client’s current financial situation. We may add questions about post-retirement income changes. Fuss #4: FIT could add to counseling time.
Counter-Fuss: Absolutely! A good counseling session should last at least an hour. Fuss # 5: FIT is borderline “financial planning,” but HECM counselors are not trained and certified financial planners. Counter-Fuss: At one point, the U.S. Department of Housing & Urban Development (HUD) was considering having counselors conduct a very detailed budget analysis to determine the suitability of a reverse mortgage for their client. FIT brings a more holistic perspective to a client’s financial situation. It helps them understand their risks and options in taking out a reverse mortgage. Fuss #6: FIT takes away the HECM counselor’s discretion. Counter-Fuss: FIT helps to standardize counseling, a concern of the lending community for years. The goal of the FIT review is to stimulate discussion about issues that may impact the senior. In addition, FIT collects data about the characteristics of potential borrowers, which can help both lenders and policymakers to better understand the needs and vulnerabilities of older homeowners. Fuss #7: Prospects’ failure to answer FIT questions could cost them their HECM Counseling Certificates, thus the ability to get HECMs. Counter-Fuss: FIT questions have no right or wrong answers. It will be impossible for counselors to conduct a budget analysis as required by HUD if seniors refuse to answer FIT questions. Seniors can provide approximate income if this is a problem for them. Besides, there is no relationship between the FIT questions and
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hands-on experience marketing and originating reverse mortgages. Through his advisory, ThinkReverse LLC, Agbamu advises financial professionals, institutions and regulators across the country. In a 2007 national report on reverse mortgages, AARP cited Agbamu’s work. He can be reached by phone at (612) 203-9434 and e-mail at atare@thinkreverse.com. Visit author Atare E. Agbamu’s blog at thinkreverse.com for his thoughts and insights on the reverse mortgage marketplace.
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be made relative to whether the appraisal has passed scrutiny. This is where the electronics stop and humans begin. If there are few deficiencies listed, the appraisal may pass the review test and the appraisal may be considered appropriate to qualify the property for collateral. Conversely, if a number of rules are broken, the appraisal may fail the test. In such a case, the appraisal will be subject to more tests. What happens next will vary with those performing the quality control test. Some may contact the appraiser for explanations; others may order additional higher-level review appraisals, while others may simply reject the appraisal from further consideration. It is at this juncture where the competence of the review staff can be the determining factor as to whether the lender makes a good or bad loan. Whether it is an underwriter, the chief appraiser or an outside quality control vendor, the lender is investing its future in the hands of those making this call. This responsibility should be assigned only to highly-trained experts, who have a depth of risk management and appraisal review experience. Institutions without adequate in-house expertise may consider outsourcing this risk management function to an independent appraisal review service provider, to insure high-quality results and meet regulatory compliance mandates. In addition, it is not just this one deal, but all of the deals that are approved or rejected by the institution that make up the organization’s track record and determine its economic success. It is also important to note that when properly used, the Electronic Appraisal Review is blind to bias and can help reduce fraud. Even the most sophisticated review provided by a certified appraisal does not carry a guarantee
against bias with it. This factor is a big plus for the Electronic Review, where regulatory compliance is an issue. Cost is another important factor when considering Electronic Reviews. Typically, they can be purchased at a fraction of that of a review by a human with state certification credentials. Costs vary, but depending upon the quality and details, the raw report can be purchased at prices of $10 or less. Depending upon the amount of labor required in the handling and interpreting the review report, an Electronic Review, complete with critique, can usually be completed for under $50, and, in some cases, substantially less. Electronic Appraisal Reviews are not subject to Uniform Standards of Professional Appraisal Practice (USPAP), since they are not prepared by people. Appraisal Reviews, such as the Desk Review and the Field Review, do require USPAP-reviewer compliance. In summary, the Electronic Appraisal Review, in many cases, may provide all of the information needed for a lender to make a final decision, regarding the quality of the appraisal under consideration. It can save a lender a great deal of money that may have otherwise been needlessly spent on in-depth appraisal reviews for perfectly good appraisals. Since Electronic Reviews are not prepared by humans, there is less potential for fraud. That, coupled with the fact that it is less expensive, makes the Electronic Appraisal Review a powerful quality control tool, something that cannot be ignored. Charlie W. Elliott Jr., MAI, SRA, is president of Elliott & Company Appraisers, a national real estate appraisal company. He can be reached at (800) 854-5889, e-mail charlie@elliottco.com or visit his company’s Web site, www.appraisalsanywhere.com.
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