HUD Tells Reverse Mortgage Counselors: New Underwriting May Vary by Lender

The Department of Housing and Urban Development has informed reverse mortgage housing counselors that lenders may begin to implement a new assessment as part of loan underwriting that will help ensure borrowers can meet the tax and insurance obligations associated with their loans.

The notification comes following the release of new recommended underwriting guidance set forth by the National Reverse Mortgage Lenders Association during the association’s annual conference in Boston last week.

Noting an October 5 e-mail from Federal Housing Administration Acting Commissioner Carol Galante that stated HECM lenders may implement financial assessment criteria as part of the qualification for a HECM loan prior to FHA publication of its own regulations, the e-mail informed counselors of their role in the implementation of such an assessment.


“Because a financial assessment is a new part of the HECM loan origination process, it will be critical for HECM counselors to address the likelihood that these requirements may vary among lenders,” the e-mail states.

The e-mail reminds counselors that housing counseling agencies are not permitted to promote, represent, recommend or steer a client to any specific lender. It does direct counselors, however, as to how they must advise clients on the assessment including two important points.

First, that “financial and credit capacity assessment guidelines may differ from lender to lender just as lenders may offer different pricing options and different product options.” Second, “some lenders my implement ‘underwriting requirements’ for HECM applicants and some may not.”

NRMLA’s guidance was published for its members on its website last week and was announced by NRMLA counsel at the association’s national convention. NRLMA encouraged, but did not require, lenders to implement such guidance as soon as possible.

Written by Elizabeth Ecker

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  • While it is great for counseling to have this information, I hope they will refrain from going into any depth of it with the more affluent.  While reverse mortgage shopping should intensify, the increase should be limited to the less financially secure.

  • On the surface the initial proposal for including taxes and insurance is a common sense approach to addressing the defaults in HECM loans.

    The problem is common sense has left the mortgage industry only to be replaced by fear driven by the preponderance of buybacks and mountains of regulation.

     I have a real problem with the fact that assessment guidelines may differ from lender to lender. This is how underwriting works in the forward mortgage world. In the forward mortgage world I have large variety of lenders that I can send my loans through. This mitigates the overlays that different lenders have. In the reverse mortgage world there are only a handful of lenders I can submit my loan to. If they all develop individual overlays for underwriting this could be a real mess. I have already experienced situations where one HECM lender denied my loan and another approved the exact same loan. Both lenders interpreted the HUD guidelines differently
    By allowing individual lenders to create overlays you open a underwriting Pandora’s Box where a loan can be denied for just about any reason the lender chooses. Anyone originating loans in the forward mortgage world know how archaic underwriting guidelines can be from lender to lender. Does the reverse mortgage industry really want to go there? 

    • The fact is we are there!!  What we are waiting for is lenders to implement underwriting standards.

      This is not a matter of what is wanted.  This is a matter of what is needed.

      The lenders would be much happier if HUD insured default losses as well but then imagine the cost of MIP.  

  • I think everyone agrees that the problem needs to be addessed.  However, by allowing the Lender to set the standards you have placed the counselor in an untenable position.   The strictest standard will be used by the counselors so that all the bases are covered  (CYA) and the borrower loses the flexibility of choosing a Lender after counseling.  The Lender they wish to use may have been taken out of the mix because their standards are less stringent.

    • Your write on the money. There needs to be an underwriting standard for the assessment guidelines and lenders should not be allowed to create their own overlays. If lenders start adding overlays to the HUD guidelines this could create a situation where originators and counselors will have to use the most stringent guidelines to qualify prospective borrowers just to minimize their exposure, as our colleague has stated. Fewer borrowers will qualify, as has happened in the forward mortgage world, because of lender overlays. The homeowner, once again, will pay the price for the mortgage industries paranoia.

      • gciungan and cwmcsr,

        I cannot believe what you two write, let alone understand it.

        What standard is being addressed in stating:  “The strictest standard will be used by the counselors so that all the bases are covered  (CYA) and the borrower loses the flexibility of choosing a Lender after counseling.  The Lender they wish to use may have been taken out of the mix because their standards are less stringent.”

        What standards can counselors bring into the selection of a lender?  This is a very strange line of reasoning.

  • One way to strengthen the system and make it more equitable for the lender and borrower would be to do away with the boutique program as it relates to recalculation and make it mandatory for the lender to collect property taxes from the monthly payments thru a special escrow account which does not recalculate, Thereby ensuring taxes being paid each year on time, and, no danger of the home being lost to lower payments by the lender to the borrower which the boutique program enforces.

    • mrfranklo,

      What are you saying?  Many HECMs have no payouts simply because every dime worth of proceeds is used to pay down debt.

      Why have escrow accounts?  If the money is coming out of available proceeds, why not use mandatory set asides.

      Please explain “recalculation.”

  • The counselor is strictly prohibited from recommending, or even implying a recommendation, for any specific lender, for any reason.  That policy has not changed.  Our only option is to tell clients, almost literally, what HUD said:  that lenders may be imposing new underwriting requirements and that these requirements may vary from one lender to another.  We are not permitted to tell the borrower, even if we know, that Lender X has laxer standards than Lender Y.  This is really no different from the way we have treated cost differences among lenders.  All we can do is tell the borrower to shop.  The sad thing, to me, is that we may have to subject borrowers to a long and frustrating trial-and-error process, which may still end in frustration.  It will be much harder for borrowers to shop for underwriting standards than to shop for closing costs.  A lot depends on how early in the process lenders will be doing this financial assessment, and how much they will be willing or able to tell borrowers before the actual assessment takes place.  Will lenders be able to tell borrowers, before application for instance, whether they have a chance of being approved?  Or will the borrower have to go through application, getting the appraisal, etc.,  only to be told that they flunked underwriting?  I suspect the latter is more likely, since no one will know what’s going to be available from the HECM until after appraisal. 

    • rmcounselor,

      You are treating this subject as if all originators are robots and employees of lenders.  Brokers will find among the lenders they work with where the borrower has the greatest chance of approval if there is any question at all about financial assessment qualification.  Most originators who work directly for lenders will not want to spend hours and hours on a prospect who cannot qualify with a lender.  

      You also seem to lack a sufficient understanding of the lending process.  Lenders do not want to waste money in wild goose chases either.  They will make the assessment as early as possible but they will reserve the right to finalize their assessment until closing.  It is absolutely to the benefit of no one to make the assessment at the end of underwriting on a borrower who obviously lacks financial capacity or has a history of not paying taxes and insurance.

      While a counselor has the right to tell a counselee to shop, that is not a conversation the counselor should be initiating.

      Your comment shows you have a very skewed and warped idea on origination, lending, and the use of our time.   Most originators do not get paid by the hour or by the number of loans we present to lenders.  We get paid based on funded loan production.  So why would we want to waste our time if we know there is absolutely no way a prospect will qualify?

      • I participate in this forum largely for the purpose of learning what things look like from the lender’s perspective.  I would appreciate your doing me the courtesy of trying to see things from the counselor’s perspective.  You could be doing a great service to counselors if you simply provided education, without the insults to my intelligence.  I apologize if my lack of detailed knowledge of your profession tries your patience.  I often feel the same way about you in regard to your ignorance of what happens in counseling.

        It might help you to understand that I work in North Carolina, a state where brokers are not permitted to originate reverse mortgages; thus the process of which you speak is not my usual frame of reference.

        I have frequently observed loan originators who seemed to be doing exactly what you are describing as something an originator would never do — starting as many applications as possible regardless of the likelihood that they would result in a closed loan.  I can only speculate why they would do this.  Perhaps the incentives are different in a call center environment?

      • rmcounselor,

        You are right perhaps I am too harsh but the HECM world at large is far more representative of what occurs here in California than what you describe is true in North Carolina.  To that extent both of our views are biased.

        New York has brokers as does Arizona, Florida, Minnesota, and on and on.  It is hard for many of us to know what the rules are in your state or how your experience may be limited in one way or another.

        Those who are in any way compensated by the hour worked with bonuses for closings would have a modus operandi much different than those who are strictly commissioned based.  While some MAY get paid by the hour, most of us are commissioned based.

        But let me be clear; to stay participating on this website requires thick skin.  So while you are right to criticize, my comments are very tame in relation to the way comments were made even as late as last year but that does not mean I do not apologize for offending you; I do.

      • Thank you.  I appreciate the apology, and even more, the additional information and insight that you provide.  I learn a great deal from this forum, and it does help me to understand how my local experience may or may not be representative of conditions in other areas.  I am glad to hear that the tone of discussion on RMD has moderated.  A civil discussion is much more interesting and useful than a lot of name-calling.

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