 No, Ask The Underwriter has not been taken over by the writers of the Food Network Channel! However, it is interesting that our knowledge and attitudes regarding food may also apply to one of the latest issues impacting our industry. Along those lines, read on and please use your sense of smell on this one.
(And oh, by the way, this is a discussion and not a legal or regulatory interpretation or opinion – your final use of the information contained herein should be in consultation with your Lender/Underwriter and legal counsel.)
Q.
I am relatively new to the reverse mortgage origination market and recently I have come upon an opportunity presented by several referral sources in my marketplace whose activities involve the purchase of REO properties for the purpose of assisting seniors with housing needs. I am aware of the market values of these homes as an appraisal with comps is done, the seniors’s eligibility for reverse mortgage proceeds is determined and in many cases the senior has already taken title by Quit Claim Deed, and the proceeds are enough to cover all aspects of the transaction. Is there a limit to how many of these loans I can originate from one referral source?
A.
My initial “quick response” is probably NONE!
In my opinion, what you have identified is a transactional methodology which completely distorts the interpretation of the expressed “seasoning guidelines” of HUD and most Lenders in the reverse mortgage market. In addition, I am raising issues of developer/rehabber intent and activities, possible appraisal guideline misinterpretation, improper title and chain transfer, and an uninsurable transaction if for no other reason this activity in most cases is a crafted purchase transaction not a refinance.
While individual Investor guidelines may vary slightly, I am confident that if one of these transactions were to be submitted, most if not all of the following would need to be satisfactorily addressed. Therefore, your consideration of whether to proceed and the appropriateness of the transaction should initially be centered around the following:
- Consider if this is a non-arms length transaction – a sampling of prevailing lender guidelines indicate that seasoning requirements – (layman’s term) the time duration of allowing the title to settle/quiet between ownership changes and corrections – has generally been increased to at least 90 days minimum when looking at transfers.
- Additional components of determining a non-arms length transaction will probably include extensive verification of owner occupancy – at least 60 days prior to application with actual documentation reflecting same.
- Review of the Borrower(s) profile will more than likely be increased wherein the ability to meet required responsibilities of home maintenance, taxes and insurance will be reviewed
- Questions will definitely arise as to the intent of the parties involved, possibly their background, capacity and degree of participation in the overall transaction as well as choice of addressing their housing need in the form and manner presented.
- Little or no tolerance for extraordinary transaction components like issues of competency, Trusts, POA’s, liens, side contracts, or future performance will be applied.
Your desire to assist seniors is noted. You should explore more broad based options to provide a level of product familiarity and education to senior’s who will benefit long term from your efforts.
Much like the “recipe” to build a bomb is not readily available to the general public on the web, I am not sure that we as Underwriters are responsible for providing the basic “recipe” to cook up a transaction which in my experience fails to serve a senior’s best interest at the same level of the developer/rehabber/speculator and places the Investor and others in an increased risk position. Remember, sniff, sniff.
 Ralph Rosynek is President and CEO of 1st Reverse as well as a HECM DE Underwriter. Mr. Rosynek has been involved in mortgage lending for over 30 years with the last 5+ years exclusively providing reverse mortgage lending solutions. To contact Mr. Rosynek or to learn more about 1st Reverse Financial Services, Please visit www.1streverse.com or call 877-574-1000.
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