Underwriting is the process by which a special team reviews credit and collateral documents to determine a client’s loan eligibility. Due to special FHA requirements that apply to reverse mortgage transactions, underwriters have the important job of ensuring that both the applicant and the property that is being pledged as collateral meet FHA loan eligibility requirements. Let’s take a closer look at the two main underwriting processes and what purposes they serve.
Credit Underwriters review credit-related documents that verify the client’s identity and age, such as date of birth and social security number. This ensures that the loan applicant is who they say they are, that they are at least 62 years of age, and that their credit history shows willingness and capacity to repay debt. This involves reviewing identification documents such as driver’s licenses and social security documentation. In some cases, bank statements, existing mortgage statements, debt and installment payments, income verification (when applicable), state and federal income tax returns, etc. are also reviewed if needed. Keeping billing records and statements going back at least 6 – 12 months is a good way to showcase a history of payments.
Credit underwriters also review the title commitment to ensure that the client is the vested owner of the property that is being pledged as collateral for the loan. This ensures that the client has the legal authority to encumber the property for the reverse mortgage. In some circumstances, there might be trusts and Powers of Attorney that are also important to help identify dispositive provisions for the property and for family members. Underwriters will also review the hazard insurance policy to make sure that there is sufficient coverage for the property in case of a catastrophic loss. In order to help the review process go smoothly, it’s a good idea to organize all your important credit and legal documents in a safe place in your home so they are readily available when needed.
Another important aspect of underwriting is collateral review. Every reverse mortgage transaction requires an FHA appraisal report to determine the value of the subject property, which in turn, helps to establish the lending limit. Since the property is being pledged as collateral for an FHA loan, it must comply with certain criteria for eligibility. Some requirements may vary from state to state, but all properties must meet HUD Minimum Property Requirements. The Collateral Underwriter will review the FHA appraisal to verify that: 1) the appraised value is well-supported, 2) that the property condition will be acceptable once any required repairs and safety hazards are corrected, and 3) that the property otherwise complies with all HUD and FHA requirements.
The appraised value is determined by many factors, including the sales from recently sold homes nearby, market trends, the overall condition of the home, and any required repairs and inspections to bring the property into FHA compliance. If there are any repairs or inspections needed, the Collateral Underwriter will set those conditions that need to be met before the property is cleared for approval. The client must also occupy the subject property as a primary residence. Both the Credit and Collateral Underwriter may request documentation to verify owner occupancy.
With every step in the process, a helpful and knowledgeable team member from One Reverse Mortgage will be there to explain what to expect next and guide you through the process of obtaining a reverse mortgage.
Di Jolly is an underwriter at One Reverse Mortgage.