Yanni Raz is CEO of HML Investments and has been a hard
money lender for more than 10 years. Raz was a real estate
broker for five years before he partnered with a group of
investors from California and began assisting real estate
investors in financing commercial and residential projects.
He writes about real estate financing for magazines, blogs
and other online news outlets. Visit lioncrestfunding.com
or hmlinvestments.com. Reach Raz at (818) 308-4443 or
As reverse-mortgage requirements change and
evolve, underwriters are often required to think outside the box. With so many different kinds of borrowers interested in reverse mortgages, it can be difficult
to wade through all of the financial documentation to
find what is necessary and what is not to complete the
process. For now, loan originators should obtain these
four basic documents from their clients to make sure
their HECM applications pass through underwriting:
n Valid identification. All co-signed borrowers
must provide proof they are 62 or older.
n Verification of principal address. HUD defines
the homeowner’s principal residence as “a property
that will be occupied by the borrower for the majority of the calendar year."
n Verification of income. HECM borrowers must
prove they can pay for any costs or fees associated
with the loan. Although the underwriting guidelines currently are not strict when it comes to credit
history, there will be a credit check. The homeowner also must provide verification of insurance
along with a copy of the property tax bill.
n Counseling certificate. The homeowner must
provide the originator with a copy of certificate
they received after completing the required
n n n
The reverse-mortgage process may seem like a difficult one to navigate, but it is not impossible. Although
the new process and financial assessment may have
made the process more challenging for originators,
underwriters and borrowers than it was in the past, it
is still typically easier to qualify for a reverse mortgage
than to qualify for a regular, or for ward, mortgage. The
reverse-mortgage requirements are simply meant to
screen homeowners more efficiently to protect them
from defaulting. n
Reverse mortgages, or Home Equity Con- version Mortgages(HECMs), wereoftenseen as loans of last resort in the past. Recent developments in HECMS, however, have
helped transform them into a helpful and smart
retirement tool for homeowners over 62.
Retirees who can meet the underwriting guidelines
of reverse mortgages can convert part of the equity
in their homes into cash. The money they have paid
into their mortgages over the years is a great source of
wealth that they have every right to use, but the benefits of a reverse mortgage can only be enjoyed if the
homeowner complies with all of the terms.
The industry is still attempting to determine exactly
what documentation should be required during the
process of underwriting a reverse mortgage, so the
job of a HECM underwriter has become more complicated. This process is not entirely impossible to navigate however, and, luckily for originators, there are
many savvy underwriters who can help make sense
of the process for them and their clients.
Homeowners must meet the following guidelines
to obtain a reverse mortgage. First, borrowers must
be at least 62 years old and must occupy the home
as their principal residence. They also must own their
home outright or have a mortgage balance that can
be paid off with the proceeds from the loan at the
time of closing.
If the borrowers meet the requirements, the application process can begin; however, the federal government also requires homeowners to go through
mortgage counseling before getting a HECM reverse
mortgage. Borrowers can find a counselor through
the U.S. Department of Housing and Urban Development (HUD) website, and will obtain a signed HECM
counseling certificate once the course is completed.
An originator cannot incur any costs on behalf of the
homeowner until the counseling is completed. The
application can be canceled at any time during the
Reverse-mortgage housing counselors will explain
the details of a HECM to the borrowers to ensure they
understand what they are getting themselves into.
The counseling was designed to protect homeowners who may not be knowledgeable when it comes to
finances and mortgages. For those borrowers who are
confident in their financial knowledge, phone consultations are available in most states.
As with a forward mortgage, the borrower’s home
is used as collateral in reverse mortgages, so the
home must meet HUD standards. During underwrit-
ing, an inspector will be sent to the home to deter-
mine if there are any repairs that are needed. If repairs
or maintenance are needed, a portion of the HECM
loan will be used to pay for them. Once the repairs are
completed, they will be inspected.
Recent changes to HECM regulations now require
an assessment of the homeowner’s finances as well.
Reverse-mortgage borrowers must be able to pay
property taxes, origination fees, insurance, service
fees, home maintenance and closing costs, so they
must provide verification that they can pay these
costs. Homeowners seeking a HECM also must not be
delinquent on any federal debt.
In addition, the home must be maintained and the
homeowner remains responsible for paying homeowner insurance and property taxes for the life of the
loan. Most borrowers can choose to roll these costs
into the loan or pay them out-of-pocket. If the results
of the financial assessment indicate that the borrower
may have trouble meeting these obligations, that
homeowner may be required to set aside part of the
proceeds of the loan to cover the estimated tax and
insurance payments over the expected life of the
These required assessments help minimize the risk to
both borrowers and lenders. They are designed to deny
reverse mortgages to homeowners who are unable
to continue to pay insurance, property taxes, and
home-maintenance fees. Homeowners with reliable
income need not worry, however. As long as they can
prove that they can cover their financial obligations, the
financial assessment is nothing to be afraid of.
Essentially, what the lenders are looking for are
homeowners who have the ability to keep up with
their various financial obligations, are willing to comply with the reverse-mortgage requirements and have
no high outstanding debt or late payments on credit
cards. These new HECM requirements are meant to
protect homeowners from default and foreclosure.
Underwriting Reverse Mortgages
New Home Equity Conversion Mortgage regulations require extra documentation
By Yanni Raz
“These new HECM
meant to protect
from default and