Who is qualified to make reverse-mortgage loans?
Lender requirements for FHA approval
- Legal, financial and credit documents about the company
- Resumes and licenses for all principals and officers
- Proof of fidelity bond, and errors and omissions insurance
- Certification that everyone associated with the company is in good standing and has no criminal background
Most reverse mortgages today are Home Equity Conversion Mortgages (HECMs), which are administered and insured through the Federal Housing Administration (FHA).
Lenders that want to make FHA loans of any type — including HECMs — must first go through an approval and certification process with the FHA. Private lenders also can make reverse mortgages, but these generally are not FHA-insured mortgages and do not necessarily follow the guidelines established for HECMs.
Lenders must provide a number of documents along with their applications to become FHA-approved lenders. For lenders that are not banks or credit unions, these documents include:
- Business formation documents;
- A commercial credit report;
- Credit reports on principal owners and corporate officers;
- Resumes for all corporate officers;
- Lender's state licenses or registrations;
- Company financial reports;
- Descriptions of company-funding programs;
- Proof of fidelity bond;
- Proof of errors and omissions insurance; and
- A company quality-control plan.
Along with the documents required for application, lenders that want to make FHA loans, including FHA-backed reverse mortgages, must certify that no officer, director, partner, principal, employee or contractor of the lender is currently suspended, debarred or restricted by the U.S. Department of Housing and Urban Development (HUD).
The lender also must certify that no one affiliated with the lender is under indictment or previously convicted of any crime that "reflects adversely upon the [lender's] integrity, competence, or fitness." In addition, the lender must certify that no one associated with the lender has been convicted of any felony related to the housing-finance industry within the past seven years, or ever convicted of felony fraud, dishonesty, breach of trust or money laundering.
On another front, lenders also must certify to the FHA that no one associated with the company has any unresolved findings from a governmental audit, investigation or review; is engaged in any imprudent or unacceptable business practices; or is in violation of any provisions of the Secure and Fair Enforcement Mortgage Licensing act or state mortgage laws.
Finally, lenders must conduct reasonable investigations into all officers, partners, directors, principals and employees going back at least three years to certify that no one associated with the lender has been refused a mortgage or real estate license, or had a license revoked; nor convicted, indicted or charged with the following:
- Violating state or federal antitrust statutes
- Destruction of records
- Receiving stolen property
Only after a lender has provided the FHA with all of the required documents and certifications will they be approved to make FHA loans for their borrowers.