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

The emergence of a new group of proprietary products to serve more borrowers is requiring many originators to take another look at borrower qualification skills and knowledge in a more detailed capacity. To successfully meet borrower objectives and lender program parameters for approval, consider the following general points in assessing your ability to originate a proprietary loan:

Points to Consider:

Borrower’s age While most of the proprietary products follow many of the HECM guidelines in their design, be aware of the specific age requirements of all borrowers at the time of application—not all proprietary products require age 62 as the benchmark for eligibility.

The principal limit calculation for proprietary programs will typically include age information and vary by lender based upon other calculation components and variables to determine available proceeds.

Counseling For many programs, specific counseling is required and traditional HECM counseling is not acceptable due to the differences in the HECM versus proprietary programs. Consult with your lender for specifics and to get an understanding of the counseling protocol that will be utilized.

Non-borrowing spouses and occupants The treatment of non-borrowing spouses and occupants may differ by lender. Additional qualification, counseling requirements, use of deed instruments and title vesting/seasoning are some of the more notable aspects that may affect the transaction.

Property types Generally, most common residential property types are acceptable, however, there may be additional appraisal requirements; income and expense qualification for multi-units; land restrictions; repair limitations; and occupancy/seasoning documentation submission in the product guidelines.

Be aware that the appraisal underwrite is critical to the proprietary lender and both HUD and agency (FannieMae/FreddieMac) appraisal requirements may apply. Discuss appraisal requirements in detail with your lender before ordering or submitting an appraisal for review. Notably, proprietary products vary in their acceptance of co-op, manufactured home, small mixed-use and unique dwelling property types.

Condominiums One of the marketable aspects of most proprietary products is the consideration of condominiums. “Non-warrantable” condos are generally defined as those dwellings that by way of size, demographics, completion, control, association covenants, unique profile and other criteria do not grid to standard agency or HUD-approved guidelines. In all cases, additional information on the condo association declarations, association financial and reserve strengths and project composition, profile and status are required.

Credit/income/employment/cash verification HECM guidelines do not necessarily provide for hard and fast qualification in all of these categories. Proprietary products may be specific in terms of true and actual documentation needed to approve a borrower’s loan request. Knowing full and specific details for these category requirements at the time of borrower pre-qualification may save valuable time in meeting the borrower’s loan objectives and avoiding a path to loan denial.

Of particular importance is the depth of loan originator experience in assessing issues in these categories and the ability to provide and collect accurate information or alternative documentation for consideration as compensating factors.

Forward loan originators may have an easier time incorporating specific proprietary qualification requirements into their pre-qualification assessment while reverse-only originators are cautioned to make sure they focus on the increased knowledge and skills related to the debt ratio analysis component, credit report contents and credit score impacts, asset verification, tax return analysis and property details, in addition to other specific program requirements.

Documentation In addition to state and federal disclosure requirements, the application and closing package may contain other disclosures and informational documents, which will need to be explained and/or executed by the borrower. As this is not an FHA-insured loan, many of the documents associated with a HECM are not appropriate for use and have subsequently been removed or replaced.

Though each lender program varies in guideline and requirements, proprietary products represent the opportunity to originate more loans for today’s reverse originator. Participating in lender-provided webinars with careful review of provided program guidelines and matrices prior to adding these products to your borrower discussions is recommended.