Following the announcement this week by the National Reverse Mortgage Lenders Association that the industry has developed guidance on limited underwriting for lenders to use in an effort to prevent reverse mortgage tax and insurance defaults, one software provider has adapted its platform to help implement the changes.
The limited underwriting is based in part on a borrower’s principal limit utilization, or PLU—the amount of principal limit that a borrower uses to pay off liens. The higher the lien payoff is, the less money the borrower will have available to cover expenses and taxes and insurance.
Reverse mortgage software provider ReverseVision now allows users to access a report showing their companies’ historic PLU over the past year, which should help in the decision-making process when it comes to underwriting for tax and insurance.
NRMLA members are encouraged, but are not required, to conduct the limited underwriting of property charges, NRMLA’s legal counsel told members on Monday.
A sample PLU report for ReverseVision users (see below) shows the percentage of loans historically which have surpassed a certain level of principal limit use.
In the sample diagram, about 13% of the loans have total liens to be paid off at closing that are higher than 85% of the principal limit. When limiting it just on the First Lien PLU (First Lien / Principal Limit), then about 10% of the loans have a first lien that is higher than 85% of the principal limit.
Written by Elizabeth Ecker