Underwriting: Understanding Seasoning and Occupancy

Written by Ralph Rosynek

When it comes to a reverse mortgage, the true definitions of seasoning and occupancy continue to puzzle many. Partially due to a lack of HUD guidance and individual investor interpretation, conflicting ideas about these two issues have emerged and caused confusion in regard to the underwriting process. It is important to separate the two issues and understand the pathway to successfully meeting the underwriting test for both.HUD does not have a seasoning requirement. That is, there is no minimum time requirement for property ownership prior to closing. Individual investors have seasoning requirements that can range from zero to 90 days, to six months to a year.

There are, however, specific benchmarks for occupancy that must be determined and verified, and must meet satisfactory risk underwriting so that lender/investor representations and warranties can be insured.

Day-range parameters for lenders who have developed overlays to the basic HUD no-seasoning requirement are included in the underwriter’s file as part of the approval process by reviewing support documentation and processed verification results.

For example, a borrower who is deeded on a title 30 days prior to application would meet the seasoning test for some lenders. However, when questions about occupancy arise, the transaction could fail because there may not be enough proof that the borrower will occupy the property as their primary residence at a minimum of 183 days per calendar year.

FOR MOST LENDERS, DOCUMENTATION NEEDED TO SUPPORT SEASONING AND OCCUPANCY ISSUES INCLUDES:
-No evidence of paying off mortgages for a borrower other than the loan applicant

-A detailed LOE from the borrower addressing recent title deeding

-Proof of residency for the period evidenced by payment of housing tax and insurance expenses

-Documentation of the date the borrower moved into the subject property and title evidence

-A list of all other properties the borrower or spouse owns

-The current use of any other property the borrower owns and applicable documentation, such as rental agreements and evidence of sale

-An explanation of the status and disposition of the previous property the borrower occupied

-Explanation of any alternative addresses reported on the credit report, including details on whether the borrower owns the property or not

-Explanation of any property attached to other mortgages on the credit report

-Explanation of any address discrepancies in the file

-Future occupancy intentions of the borrower

-Months that the borrower spends in each home, and a note if the borrower splits his time between multiple homes

-Signed 4506T authorization to pull tax returns

-Copy of a recent Social Security benefits awards letter, or a copy of the monthly Social Security check mailed to the subject property

-Utility bill statements covering the period since they were deeded on the title with mailing address match verification

-Bank statements covering the most recent period showing transaction history

-An LOX if mail is routed to a post office box that is not within a reasonable distance of the subject property

-A physical third-party occupancy inspection

-A state-issued picture ID verifying the subject property address

Establishing seasoning and occupancy is a key element to mitigating fraud risk. While this is not an all-inclusive list and the underwriter may request additional documentation, it is important that files are properly processed to provide this support for successful underwriting file approval.