In 2014, the Federal Housing Administration released updated guidelines for underwriting reverse mortgage loans, instituting a financial assessment of prospective borrowers that required a much deeper dive into a borrower’s credit history than previously required.
The goal was to reduce the likelihood of default by assessing a borrower’s financial status and history to determine their “ability and willingness” to fulfill the obligations of the loan.
The result was a long and time-consuming endeavor for HECM processors and underwriters.
But now, the FHA has taken steps to streamline the cumbersome process for lenders, releasing updated guidance recently that specifically approves the use of third-party verification – or TPV – to collect a borrower’s financial information.
In a new mortgagee letter, the FHA said TPV services provide lenders with an alternative means to verify a borrower’s income, assets and employment so they do not have to collect paystubs, W-2s and bank statements themselves.
While previous FHA guidance allowed for the electronic verification of financial documents, no specific guidance regarding the use of the TPV vendors who specialize in this type of information gathering had been released.
Now, lenders are expressly permitted to hire TPV vendors and specific requirements – including the lender’s responsibility to ensure their compliance – have been detailed.
You can read the details in the mortgagee letter here.