Intro to Reverse Mortgages - Jordan Bernbaum 12/11/2025

Jordan Bernbaum delivers a “Reverse Mortgage 101 (Version 2.0)” refresher designed for NEXA loan officers and referral partners. The goal is to explain the fundamentals of the FHA Home Equity Conversion Mortgage (HECM), identify the best borrower profiles, show where reverse opportunities already exist in a typical pipeline, and highlight the key qualifying hurdles that can derail a reverse file. He also briefly demonstrates reverse mortgage quoting software (Quantum Reverse) to show how proceeds, margins, residual income, and the Life Expectancy Set-Aside (LESA/LISA) impact eligibility and borrower benefit.

Key Concepts & Talking Points (High-level Reverse Mortgage Basics)

What is a reverse mortgage?

• Proper name: HECM (Home Equity Conversion Mortgage) — typically an FHA-based reverse mortgage.
• There are also proprietary reverse options in some states (not available everywhere).

Core “stay in the home” rules (the big 3)

1. Primary residence requirement (the home must be the borrower’s primary residence).
2. Property taxes and homeowner’s insurance must be paid on time.
3. Home must be properly maintained (serious deferred maintenance can trigger issues).

Why it’s called “reverse”

• In a forward mortgage, the borrower makes payments that reduce principal.
• In a reverse mortgage, interest accrues and is added to the principal balance over time (no required monthly mortgage payment).

How borrowers can receive funds

• Lump sum
• Line of credit
• Monthly payment
• Or a combination of these
• (Most commonly lump sum and/or line of credit.)

Ideal Borrower Profile (Who Reverse Helps Most)

Age and eligibility

• Typical base guideline: 62+ for HECM.
• Some proprietary products: 55+, but often require more equity and are harder to qualify.

Equity and need

• Must have substantial equity in the primary residence.
• Must have a clear need where reverse is the best-fit solution (age + equity alone doesn’t automatically mean reverse is best).

Where to Find Reverse Mortgage Borrowers (Pipeline-first approach)

Common “reverse-eligible” lead sources already in your pipeline

• Downsizers / relocation buyers who want to keep more cash on hand.
• HELOC applicants.
• Cash-out refi borrowers who hit DTI or credit obstacles.
• Borrowers with:
• Fixed income
• Need to pay off debt
• Back-owed property taxes
• Approaching or entering retirement

External marketing: go where seniors pay attention

• Newspapers
• Direct mail
• Facebook
• Targeted advertising to older demographics
• (Lead costs exist, but reverse commissions can justify the spend.)

Reverse vs Forward Mortgage Workflow (How the process changes)

Similarities

• Still an underwritten loan.
• Standard steps: docs → underwriting → conditions → close.

Key differences

1. Mandatory HECM counseling

• After confirming fit, issue a loan proposal and send the borrower to counseling.
• Typically a 1-hour phone appointment.
• Cost is usually ~$150–$200.
• Closing timeline becomes predictable after counseling is completed.

1. Application signing logistics

• Some borrowers may not use email or computers.
• Paper packages (FedEx/UPS) may be required.

1. More frequent title/appraisal challenges

• Homes often owned for decades.
• Older title issues or deferred maintenance may arise more often.

Document Checklist (What you need to collect)

Common required items

• Photo ID
• Social Security verification
• Social Security card or
• Most recent 1099 with full SSN
• If unavailable: SSA-89 e-sign form

Income documentation

• Award letters (Social Security, pension, etc.)
• At least 1 month bank statement showing deposits
• (Award letter alone is not sufficient.)

If employed / self-employed

• Paystubs, W-2s, tax returns (if applicable)

Property & insurance

• Homeowners insurance declaration page
• Free-and-clear owners may need to obtain insurance.
• Current mortgage statement (if applicable)
• If other properties exist: mortgage statements + HOI declarations

Overall, documentation is often lighter than a forward mortgage.

The Two Biggest Disqualifiers (What can “kill” a reverse file)

1) Residual Income (RI)

• Similar to VA residual income.
• Factors include:
• Liabilities
• Taxes & insurance
• Utilities (estimated from square footage)
• Number of occupants
• Must meet minimum thresholds.

Possible workaround

• Dissipation of proceeds: A portion of expected proceeds can be treated as income, but cannot be the sole income source (borrower must still have fixed income like Social Security).

2) LISA / LESA (Life Expectancy Set-Aside)

• Funds reserved to pay property taxes and homeowners insurance over the borrower’s life expectancy.
• Triggered by credit or housing history concerns (or borrower request).

Why it matters

• Can significantly reduce proceeds or create a shortfall.
• Especially impactful in high tax/insurance states.

Key rules

• Must include both taxes and insurance (cannot choose one).
• Can help residual income by removing T&I from the calculation.
• Can hurt proceeds by reducing available funds.