Is Reverse Mortgage Underwriting Getting Tougher?

While the reverse mortgage industry has long awaited formal guidance from the Department of Housing and Urban Development as to greater underwriting requirements when it comes to Home Equity Conversion Mortgage borrowers, lenders have only scratched the surface when it comes to implementing sweeping underwriting changes to address the issue of tax and insurance defaults. 

More and more, though, we are hearing from originators that say underwriting has changed, albeit gradually, in the direction of more requirements, more documentation and necessary records overall. 

One example provided by a longtime broker is months of phone bills, mortgage statements, rental agreements and tax records on any homes that are not the borrower’s primary residence. Additionally, he says, underwriters are looking into any additional addresses that may appear on a credit report—even if the address belongs to an attorney, an explanation is required. Homeowners’ insurance, too, is being examined more thoroughly than before. 

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“It’s not all bad,” he told RMD, “but you can tell that with a smaller and smaller lender pool to deal with that they are making sure things are to the letter.” 

Other originators have reported more required documentation for items that would have previously moved along without as much scrutiny. Citing a case of a tax foreclosure that took place three years earlier and had since been reversed, one originator said his client’s application was denied. It wasn’t a financial problem, he says, and the borrowers had paid taxes on time every year since the foreclosure. 

“There has been some impact on [the larger] lenders,” he says, noting that smaller lenders may be able to devote more time to the approach. “This is the direction HUD has indicated it wants to go.” 

It may also be a sign of the times, following the worst economic downturn since the Great Depression resulting in large part from a boom in sub-prime lending. 

More stringent underwriting requirements have also been noted as one possible reason for the increase in reverse mortgage fall through, measured as the rate at which potential borrowers go through counseling but ultimately do not close the loan. By some recent estimates, that rate is close to 50%. 

While the implementation of a financial assessment mandated by HUD has been discussed, lenders have yet to publicly make a change in that direction. MetLife tested new underwriting guidelines as a form of financial assessment before exiting the business, while other lenders have stated their intention to do so without implementing the change. 

Several lenders had not responded to requests for comment as of press time. 

Written by Elizabeth Ecker

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  • We are seeing more questions at the lender end which hold up the process and make us all nervous that our work will pay us for our services or not, as counselors worry. In the end, it will be about knowing what to expect. People jump off the loan close lane when they are blindsided by regulation coming out of the woodwork. Usually, as LOs, we can prepare people for the questions if we know what they are and our borrowers will stay on the train heading for the station. What seems unfair is to treat people who are conscious of regulation as law breakers before they are guilty of anything amiss.

    • Warren,

      I do not agree.

      Quite frankly at times you lose me.  What you wrote sounds like reverse mortgage sales 101 training.  Being proactive requires a much different understanding of the situation and much different problem solving outlook. 

      There are huge differences between government regulations and 1) law, 2) rulings, 3) lender policies, 4) lender guidelines, 5) arbitrary “rule making,” and 6) flat out errors.  It is very apparent you have little to no experience fending for your clients at this level.  

      When coming into the industry, the standards which we all accepted were HUD minimum standards plus lender overlays which were generally few and well known.  Over the last few years, some underwriting units have been making up rules to avoid difficult resale issues, warehousers are more particular, and lenders are radically changing their acceptance of certain properties such as manufactured homes as qualified properties over relatively short periods of time almost at times on a state by state basis.

      You are overly prone to blame regulators and regulations when if you researched the issue you would find many times it is internal and external market conditions which are increasing and decreasing overlays that are being blamed on government regulators and government regulations; after all they are easy targets.

  • A reverse mortgage today is taken much longer to close. The entire process has slowed up, from taking an application, to getting an appraisal to processing the loan and yes, the underwriting!

    We have so many new guidelines coming in and more regulation changes to unbelievable underwriting changes and nit picking.

    We have so much confusion in how a reverse mortgage should be underwritten that companies are now putting on review underwriters. 

    This is causing what everyone in the industry dreads.We are seeing after a list of stips are given on a case then cleared, more come out. This creates a slow down on a case more than anything. In short, it is becoming a nightmare!

    Regulation after regulation and change after change, hold up a minute, we don’t need it, not to this extent. I feel we have not seen any where near the end of it. Prepare your borrower, that is all I can say!

    John A. Smaldone

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