By Cassandra Wayman
For institutions that focus mainly on forward mortgages, it’s time to make sure that your reverse mortgage HMDA implementation plans are as developed and underway as your forward mortgage HMDA implementation plans. While the reporting requirements for reverse mortgages are fairly similar to forward mortgages—and actually require less data—don’t make the mistake in thinking that the reverse mortgage HMDA process will simply fall into place with your forward mortgage plans or will be simple enough to be a last-minute project. If you haven’t quite made this a priority yet, here are some things to consider as you move reverse mortgage reporting higher on your priority list.
In July, the CFPB released a proposed change to the HMDA rule regarding thresholds on open-end lines of credit, proposing to change the lookback threshold from 100 loans in each of the last two years to 500 loans in each of the last two years for 2018 and 2019, to allow more time for implementation. For many institutions that do not focus a majority of their efforts on originating reverse loans, this increase in threshold may exclude many of your reverse mortgage loans from your HMDA report. This is great news; however, remember that it is only a proposed rule, and there are other reverse options that are not open-end lines of credit, so while this proposed threshold change may minimize the loans on your report, it shouldn’t change your implementation plans.
The Reverse Mortgage Application Data
Gathering some of the loan data that is required on all applications may be difficult because some of these data points—such as construction method, manufactured property type, and land interest—are not collected on the current Residential Loan Application for Reverse Mortgages. These data points will require additional fields in your LOS system and possibly an addendum to the application. However, unlike the forward mortgage application, this application form does provide the fields needed to determine the loan purpose according to the new HMDA expectation if your loan officers are given training to understand the differences between each loan purpose and the expectation set that they must document all of the purposes of the reverse loan on the application.
There are some data points that the rule has excluded from reporting on reverse mortgages and will therefore be reported as “not applicable”: APR, HOEPA Status, Loan Cost, Origination Fee, Discount Points, Lender Credit, Prepayment Penalty, and Term. There are other data points that may be reported as “not applicable” based on your underwriting guidelines such as Credit Score and Income.
While the rule doesn’t state that credit scores and scoring models for reverse loans will be reported as “not applicable,” it is likely your institution does not use credit scores as a qualification factor on reverse loans. Generally, the applicant’s credit report is pulled during the reverse mortgage process for the underwriter to review for current adverse credit issues that may affect the property, such as an open bankruptcy or pending foreclosure; however, scores are not normally a considered factor in the credit decision. Review the reporting requirement with your reverse underwriters and review conditions and declines on old files to ensure you understand your institutions practices in regards to credits scores on reverse loans to ensure you are meeting the HMDA expectation.
The new rule requires that we report the income and DTI relied upon in the credit decision. Based on your underwriting guidelines, there may be scenarios where income and/or debt-to-income is not considered in the credit decision, in which case you would report “not applicable.” On loan files that do require income, one of the challenges is that the rule lacks clarity in regards to assets. The commentary to the current rule says that the financial institution does not include as income amounts derived from annuitization or depletion of an applicant’s remaining assets. The proposed rule explains further that they mean to exclude assets that are not in actual distribution but are remaining. Because reverse loans are offered to persons over the age of 62, this demographic is very likely to have assets beyond their normal income that are not yet in distribution (i.e., retirement accounts). If you are considering retirement accounts or other assets that are not currently in distribution in your income calculation, based on the proposed rule they would not be included in the reportable income, so your LOS system may need to support the income actually used in the credit decision as well as the HMDA reportable income used in the credit decision.
Uniform Loan Identification – ULI
If your institution uses separate LOS to originate forward and reverse mortgages, are the loan numbers different enough between systems that they won’t overlap at any time so that your Uniform Loan Identifier (ULI) is unique?
As you work your way through the implementation process, there will be other questions and challenges that need to be acknowledged and addressed either in your policies and procedures or within your LOS, so take the time now to read through the finalized rule and proposed rule from the reverse mortgage perspective to make sure that you are addressing each nuance for reporting your reverse loan data.
Cassandra Wayman is the HMDA/Fair Lending Manager for Primary Residential Mortgage. She can be reached at CWayman@PrimeRes.com