NRMLA Board Approves Limited Underwriting to Prevent Reverse Mortgage Defaults

The 31-member board of directors of the National Reverse Mortgage Lenders Association and its special financial assessment task force today approved and published guidance on limited underwriting for property charges for HECM lenders.

“NRMLA members are encouraged, but are not required, to follow NRMLA guidance including this guidance of limited underwriting of property charges,” said James Brodsky, NRLMA legal counsel in a presentation to attendees of the associations annual conference in Boston on Monday.

The news comes after a letter from Acting Commissioner Carol Galante stated there was nothing prohibiting HECM lenders from underwriting for property charges.

The underwriting guidance suggests that issuers examine a reverse mortgage applicant’s capacity and willingness to pay ongoing property—including taxes and insurance associated with the loan.

Lenders are encouraged to look at payment history of the applicant and a principal limit calculation to determine how much of the initial principal limit the borrower will need.

Based on a lender’s findings, other compensating factors can be considered.

NRMLA says it hopes lenders will implement practices based on the underwriting guidance is “as soon as possible.”

“Those who choose to adopt this guidance should do so as soon as possible,” Brodsky said, noting ongoing communication with the Department of Housing and Urban Development concerning HECM defaults due to tax and insurance delinquency.

HUD has been active in conversations with the industry regarding the development of addressing HECM tax and insurance defaults, with the department’s Karin Hill, Office of Single Family Program Development director, being present during a portion of NRMLA’s board meeting.

Board members told RMD the decision took place quickly and without opposition.

RMD will post the offical guidance once it has been published by NRMLA.

Written by Elizabeth Ecker

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