Notes in the sand....

Written by Ralph Rosynek Friday, 09 July 2010 15:50

Articles - Underwriting

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For many of us, July and August represent the time when we break out our luggage, pack up our sandals and head for the beach and destinations beyond.  Summer fun and relaxation is one of our rewards for prior months of hard focused work.

A recent conversation with many of my fellow reverse mortgage colleagues has revealed an interesting twist in the ritual of choosing the right book or magazine to aid in the vacation process.

HUD anticipated your relaxation and perhaps you should consider a “notepad in tow” to replace that best seller or magazine.

My guess is that upon review of the latest mortgagee letter, “summer beachin” may take on a whole new meaning for all of us!

Here are a few random notepad items to start you off......

The recently released HUD Mortgagee Letter 2010-20: Implementation of Final Rule FR 5356-F-02, “Federal Housing Administration: Continuation of FHA Reform—Strengthening Risk Management through Responsible FHA-Approved Lenders" includes revised information concerning present and future net worth requirements, changes in authorities, mortgagee status definitions, origination activities, underwriting authorities, loan performance, employment definition, and much more.

NotePad Item (1): Read the mortgagee letter in detail.

NotePad Item (2): Whether an owner or loan originator, how does this mortgagee letter impact me?

NotePad Item (3): What internal origination processes will be affected by the letter changes?

Notepad Item (4): What additional training and education is needed to address the letter changes?

Notepad Item (5): Will my licensing support my present and future origination activities?

Notepad Item (6): How will the increased net worth requirements be achieved?

Notepad Item (7): What impact will loan performance and compliance issues have on my day-to-day activities?

Notepad Item (8): Are changes necessary to my marketing, communication and disclosure activities?

Now, draw a line.

Notably missing from the first group of items are issues related to your investor relationships. In the next few months, the investors will undoubtedly be evaluating their internal credentialing and broker/correspondent approval processes. Increased risk resulting from direct endorsement authority applied to third party originated loans is probably at the top of the wholesaler notepads on the beach.

I think we all know that the cost impact of increased risk and assessment will also show up in a variety of ways.

My recommendation is that no assumption should be made as to all relationships you presently have being kept limited to “business as usual”; the new relationships you may develop will certainly be subject to increased credentialing requirements and risk mitigation.

Enhanced review of size, financial strength, volume, management expertise, internal processes, prior performance, commitment to the product, and varying state regulation and legislation may impact present and future relationships.

While size, volume and financial strength are of concern, I would suggest that loan origination and processing activities combined with management expertise and focus are weighted more heavily.

Your evidence of efforts to mitigate risk through solid policies and procedures will tremendously support your relationship development and maintenance with your investor.

Notice the operative word “evidence”. Many company policy and procedures manuals are well written and contain detailed risk mitigation protections for all parties. Sadly, the resulting evidence of the implementation and measurement of these protections is lacking or in need of improvement.

Your notepad should include items related to the review, update, and evaluation of your policies and procedures,  as well as what measureable results that can be provided in the future to evidence your loan origination and processing quality – these results will have a significant impact (hopefully a favorable one) on your ability to retain and expand your investor relationships.

Notepad Item (9): You knew where I was going with this (!) – the book you need to bring along is your policies and procedures manual. Don’t have a PAP Manual? – I suggest you research, approve and implement one – fast.

Now that you have read it, when you get back make a note to walk through it (or assist in the walk-through) and determine fact, fiction, fantasy or proof positive you are mitigating risk appropriately.

Notepad Item (10): Read and review your last 3 quality control reports and the management responses.

Don’t have written QC reports? – check your policy and procedures, they say you do. Remember, you are not exempt from quality control because your investor undertakes this procedure. QC is everyone’s responsibility.

And lastly, do relax on your vacation – you will need your strength when you return as we experience another little bump in the road on our journey to continue serving seniors – possible PLF adjustments!!