Written by Ralph Rosynek & Jessica Guerin, as originally published in The Reverse Review.

An astute underwriter is essential to completing any sort of successful loan transaction. These individuals are faced with the weighty task of reviewing documents that pertain to the borrower and the property in question, and assessing the risk associated with granting a loan.Their evaluation can effectively make or break the entire transaction, which means that an underwriter’s review affects everyone involved in the process, from the borrower to the originator to the lender.

While any kind of underwriting can be a taxing pursuit, the job of a HECM underwriter is a particularly challenging one, requiring acute knowledge of stringent FHA standards and adherence to a specific methodology unique to the reverse mortgage loan process. HECM underwriters are specially trained to handle these kinds of government-insured loans, and a substantial amount of experience is required to develop a true command of the process.

Pending and future changes to the FHA’s HECM program promise to complicate the underwriter’s task. The implementation of a financial assessment rule and the establishment of escrow reserves for taxes and insurance are immediate concerns that will certainly impact their work. As the guidelines for FHA-insured loans continue to evolve, it is essential that HECM underwriters stay abreast of shifting requirements, and as a result, the job demands continuous training and education for underwriters to remain compliant. Because the underwriter’s work is so impactful, it’s important that everyone involved in the reverse mortgage loan process understands this experience so that the entire team can work together efficiently to serve senior borrowers.

Becoming a DE Underwriter A Direct Endorsement (DE) underwriter, which is the classification required to handle HECM loans, reviews and certifies mortgage loan documents to ensure compliance with the requirements of the FHA’s mortgage insurance program.

Nowadays, the process of certifying a DE underwriter varies by lender; the FHA no longer enforces minimum education or skill-set requirements in order for an individual to qualify for DE certification. In the past, HUD oversaw an official application and credential process, but a 1996 Mortgagee Letter put an end to this system and transferred the responsibility to the lender.

Since then, lenders have been permitted to implement their own requirements for DE designation based on their concept of the proper skills and experience needed to meet the demands of the job. Most companies train their underwriters internally, pulling from a pool of experienced processors whose grasp of the HECM product and familiarity with its required documentation make them excellent candidates.

Urban Financial Group is among several leading lenders that follow this model. According to Sherry Apanay, the company’s managing director and head of sales, cultivating talented loan processors is the most effective way to build a solid team of underwriters. “Being able to ‘home grow’ your underwriters is critical to success,” Apanay says. “One of the best talent pools is the processors. If you can find ones who think like underwriters, then you are golden.” Apanay recommends that lead underwriters pay careful attention to their processing staff. “Good processors are your company’s future underwriters,” she says, “so evaluate them closely.”

There are also some underwriters who have transferred from the forward sector, expanding their professional expertise to include FHA loans and therefore making themselves more marketable in a challenging job environment. But industry veterans warn that this transition comes with a sharp learning curve because of the complexities involved in HECM loans.

Brenda Phillips, the process and underwriting manager at RMS, says underwriters who make this transition need to acquire “an understanding of the different guidelines between a forward mortgage and a HECM, as well as an understanding of the guidelines that impact both.” Still, Phillips admits it’s a difficult transition, even if one has a grasp on both requirements. “Being able to mitigate between the two is the challenge,” she says. Because the differences between forward and reverse are so great, some lenders say they prefer to hire promising individuals without forward experience or train loan processors internally in order to avoid dealing with someone who may struggle to break habits learned in forward lending.

Some say the profession might have been impacted by the exit of big banks from the reverse space. Once major entities in the sector, MetLife, Wells Fargo and Bank of America pumped their substantial resources into training large pools of HECM underwriters, setting the standard for quality and education within the industry. But when these big banks closed down their reverse operations, the industry lost a major training ground. Others, however, claim that the absence of big banks isn’t a concern and that the impact of their exit was marginal, as midsized lenders continue to successfully train their own underwriting staff.

For many lenders, this process of training and certifying an underwriter involves a timeline of set benchmarks and promotions. According to Robyn Perry, underwriting manager at AAG, an individual on this track must be a part of the team for a minimum of six months before he or she can be 8 promoted, often from a loan processor position, to junior underwriter. This person would then move through three stages of promotions based on merit, from DE 1 to DE 2 before attaining the company’s highest DE 3 designation. Perry says her team will grow to 17 underwriters by next week, and that the company’s system has been extremely effective in managing and training her team. “It’s working out so well,” Perry says. “We’re lucky we have sufficient staff to support such a project.”

Regardless of the lender’s specific process, once an underwriter receives internal certification they must submit their personal information to the FHA’s Underwriting Registry and undergo a check for federal debt through the Credit Alert Interactive Voice Response System (CAIVRS). They are then issued an official underwriter identification number, which remains as proof of certification throughout their tenure in the profession, regardless of their current employer.

The Work of a HECM Underwriter An underwriter’s primary goal is to set the value of the property in question and assess the risk involved for both the lender and the fund. This evaluation and review requires substantial documentation and is an essential component of the FHA’s HECM loan insurance process. The ability to coordinate guidelines, mortgagee letters, agency guidance, industry risk resources and lender overlays is the foundation of a well-seasoned underwriter.

In effect, a large portion of the initial work should be completed by the loan’s processor, who gathers information and third-party reports to create a clear picture of compliance and risk for the underwriter’s review and evaluation. If the processor’s work is thorough, the underwriter should merely act as a rubber stamp of sorts, approaching the file from a compliance and risk-mitigation perspective.

Some veteran underwriters claim their work can be misunderstood by loan officers and by management, who might view the underwriting team as the “loan prevention department.” Others, however, maintain that it depends largely on where you work. Perry says her experience at AAG is quite the opposite. “Some might say, ‘We don’t care what you

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think, we want you to prove that file,’” Perry says. “But our management has the highest regard for my opinion and the opinion of my underwriters.”

Still, Phillips acknowledges that underwriters are in a unique position and that this does require some delicacy. “No doubt there is balance between supporting sales and mitigating any potential future risk, but it’s an underwriter’s job to find that balance.”

To be sure, the job does come with its own unique complexities. They conduct what some might call “old-school” underwriting, meaning that this particular type of assessment is reflective of practices that existed prior to the creation and use of AI underwriting engines. Rather than relying on advanced technology, DE underwriters must process the file manually with only minor technological assistance to aid in the completion of their review.

Partly because of this technology factor, some point out that contrary to what many in the marketplace seem to believe, a DE underwriter who handles other types of FHA loans is not necessarily qualified to underwrite HECM loans. “Many may think that underwriting a HECM loan is a piece of cake because there are no financial documents or credit reports to review,” Perry says. “But it is exactly for those reasons that a HECM loan is more difficult. When reviewing our collateral, it’s imperative that we are spot-on. We don’t have payment history, cash saved or employment history to use as compensating factors. Our investors rely on us to be the best when it comes to appraisal review.”

The Importance of Continued Education Because of the evolving nature of HECM guidelines, a major part of the underwriter’s job is continued education. Britany Luth, vice president of operations for Urban Financial Group, stressed the importance of keeping up. “The consistently changing industry requires underwriting professionals to keep up with new underwriting guidelines on an ongoing basis,” Luth says.

Jennifer Wood, assistant vice president at Urban Financial Group and the underwriting team lead, agrees. “Training underwriters is an ongoing practice due to the ever-changing industry.”

As a result, many lenders have developed systems for their underwriting teams to support this need, providing educational materials, hosting regular training sessions and establishing mentorships to help guide those newer to the profession. Wood says her team at Urban is given an array of

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tools to help them stay abreast of new rules and regulations. “This is a challenging job and it’s essential to have the team prepared for changes and trends,” she says. “As part of the ongoing training for our underwriters, we encourage them to attend different HUD trainings, we provide educational reference materials, and one-on-one mentoring is essential. Since every file is unique, training the underwriters is not just a short-term process but something we provide throughout their career.”

The Gold Standard DE underwriters with solid HECM experience are highly marketable. Their expertise makes them what some call the gold standard of underwriters, and this esteemed position can come with a higher salary and a bit of seniority over standard DEs.

But despite this status, some industry experts, like RMS Senior Vice President Elly Johnson, point out a notable shortage in experienced personnel. “There appears to be a shortage of HECM underwriters and, I believe, of underwriters in general,” Johnson says. “It seems that when the market turned a few years back, many underwriters decided on a career change or retirement. I have spoken to many possible candidates who just decided to exit the market.”

While HECM volume has waned in recent months, industry analysts predict a significant uptick in the coming years as the boomer generation continues to age. If the marketplace were to experience a drastic increase in HECM origination, some worry that a lack of qualified underwriters would be a strain on growth. Lenders would be under pressure to quickly beef up staff, either by hiring externally or training staff from within.

With this in mind, lenders would be wise to carefully cultivate their underwriting staff and acknowledge the important work these dedicated individuals do. Their constant need to stay on top of evolving industry guidelines and portfolio trends makes their job a demanding one, and the quality of their work impacts everyone involved in the reverse mortgage loan process.