Frequently Asked Questions

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BORROWER SIGNATURE

Competency/Incompetency

Determination of a borrower’s competency is a very touchy subject in the medical field. 1st RMUSA will accept the physician using the wording “borrower is able to handle their personal financial affairs (or decisions)” to define a borrower being competent or “borrower is not able to handle their personal financial affairs (or decisions)” to define a borrower being incompetent.

Competent Borrower requirements:

If the borrower is “competent” HUD mandates that the borrower attend HECM counseling and sign and date the HECM Counseling Certificate and the upfront 1009 Application.

1st RMUSA will not accept a borrower signing all documents with an “X” or a borrower utilizing a rubber stamp signature. An acceptable POA, Conservatorship or Guardianship will be required for all documents EXCEPT the HECM Counseling Certificate and upfront 1009 Application which the “Competent” borrower will have to sign.

Incompetent Borrower Requirements:

If the borrower is “incompetent” HUD requires the Case Binder to include a physician’s letter confirming:

The borrower was “competent” at the time of execution of the Power of Attorney;

Cause and date borrower became “incompetent” and that borrower is currently unable to handle his/her personal affairs.

In addition please check the state’s requirements specific to individuals signing with an “X” or mark, as each state’s requirements are different.

CONDO PROJECTS

This will follow FHA rules, FHA does generally have concentration requirements in a complex but if the complex is FHA approved then it has already passed those tests.  Our condo underwriter will then recertify that it still meets HUD guides.

COUNSELING

Unfortunately, the State of California doesn’t allow for waiving the counseling.

In compliance with state specific counseling regulations, we prohibit the waiver of counseling in the following states: California, Indiana, Maryland, Minnesota, Tennessee, and Texas.

Minnesota allows only HUD approved counselors domiciled in MN to provide reverse mortgage counseling. (Minn. Stat. 46-58) See below:

“Independent counseling agency” means an agency approved by the United States Department of Housing and Urban Development, domiciled in Minnesota, to provide loan counseling that has no business relationship with the lender and, except for an authorized foreclosure prevention counseling agency, as defined in section 580.021, subdivision 2, neither makes loans nor refers borrowers to any person or entity that makes loans…

https://www.revisor.mn.gov/statutes/?id=47.58

This does not preclude the counseling agency from providing counseling over the phone.

No, the FHA case number is required up-front. However, the counseling certificate can be provided either prior to or after the loan application.

COUNSELING CERTIFICATION

It doesn’t expire although it must be reasonable. In other words, we probably wouldn’t accept one that is more than 12 months old because of the October changes- I have never seen one that old though.  In Texas, they must be dated within 6 months of funding.

CREDIT

We do not use credit scores on HECM loans. We go off their credit profile/payment history, etc.

CREDIT BANKRUPTCY

It will depend on their overall credit.  So if this was due to an extenuating circumstance (death of a spouse for example) and their credit was clean prior to the BK and has been clean since January we could allow for no LESA.  If they filed due to financial mismanagement and we can see a history of late payments then they will need to have clean credit for 2 years since the BK to allow for no LESA.

At least one year with documented extenuating circumstances on a HECM.

CREDIT DEROGATORY

Here are the specifics, we do evaluate the overall credit to meet HUD’s guidelines and utilize the LESA when possible:

The mortgagor has made all housing and installment debt payments on time for the previous 12 months and no more than two 30-day late mortgage or installment payments in the previous 24 months; and the mortgagor has no major derogatory credit on revolving accounts in the previous 12 months. Major derogatory credit on revolving accounts shall include any payments made more than 90 Days after the due date, or three or more payments more than 60 days after the due date.

CREDIT DEROGATORY SHORT SALE

I know we spoke about this on the phone, but just to re-iterate: a short sale is treated like a foreclosure. So it would follow the 3 year guideline.

H2H

18 months on H2H is closing date of original HECM to our new case assignment. 

HELOC SEASONING

So the HELOC has to have been open for over 12 months, if it has been open for over 12 months HUD does not care about draws. If the HELOC was opened within the last 12 months there can be no more than $500 in draws in the last 12.

INCOME

Some of the questions to ask if you are coming up short of residual would be, is there any additional household income we are missing? Is there an NBS? Interest/dividend income that would continue? Future SSI/pension within 60 days of closing? If there are sufficient assets in the transaction to structure with an ARM we can use asset dissipation for the proceeds available on the 13th month. We take into consideration the amount of shortfall, would a LESA help? Finally, is this a sustainable solution for the borrower? Hope that helps.

3.60 Expected Income

Expected Income refers to income from cost-of-living adjustments, performance raises, a new job, or retirement that has not been, but will be received within 60 Days of mortgage closing. The mortgagee may consider Expected Income as effective income except when expected income is to be derived from a family-owned business.

The mortgagee must verify and document the existence and amount of expected income with the employer in writing and that it is guaranteed to begin within 60 Days of mortgage closing. For expected retirement income, the mortgagee must verify the amount and that it is guaranteed to begin within 60 Days of the mortgage closing.

With employment you need to establish history and continuance.   Her recent return to work you would need to establish a prior work history and build the case of her new employment along with demand and likelihood of continuance.  We may need to average her current income.   We are able to use projected income, i.e. SSI, if it begins within 2 months of closing and can be documented.  Hope that helps, let us know if you have further questions.

We use the above grade square footage from the appraisal. I am not sure what the second part is asking.  We don’t add any of that back because the schedule E is used to calculate the rental income. The subject property cannot have rental income so we will not be paying off any mortgage that has rental income. We cannot pay off debt that is not against the subject property.

In order to use income on rentals borrower would have had to have filed them on his tax returns.  If he just acquired them since last tax filing that is one thing and we can use the lease, however, if he has owned them for a while they must be reporting on taxes to use income.

They must be able to meet residual guidelines, so with no income, there is no way for him to meet residual. 

INCOME: DOCUMENTATION

Coming up on tax day so we wanted to clarify our tax/income policy for reverse loans:

The most recent two year tax returns OR tax transcripts are required on every loan. This will include 2017 as of Wednesday April 18th. We can accept one year or possibly even no taxes/transcripts at all on a case by case basis. However, this will generally be a standard condition on each file.

Self-employed borrowers will require 2017 taxes as of Wednesday April 18th and will also require a YTD P&L as we are past 1st quarter of 2018.

For employed borrowers as of the end of January we should be getting 2017 W2s.

For our SSI borrowers we will require a 1099 or Award letter as well as documentation of current receipt with a complete bank statement. The year of the 1099 or award letter is not so important. We can accept an older 1099 as long as we have current receipt. If it is a recent 2018 award letter we still want current receipt with a complete bank statement.

INCOME: EMPLOYMENT

Traditional Current Employment Documentation: The Mortgagee must obtain the most recent pay stubs covering a minimum of 30 consecutive days (if paid weekly or bi-weekly, paystubs must cover a minimum of 28 consecutive days) that show the Borrower’s year-to-date earnings, and one of the following to verify current employment: A) a written Verification of Employment (VOE) covering two years; or, B) an electronic verification acceptable to FHA.

INCOME: EMPLOYMENT, PART-TIME

Using a second job requires a 2 year history of working 2 jobs.  However, it can be used as a compensation factor if she is short residual of less than $100. There are other compensating factors and other ways that she could be approved for the loan.   Your best bet is to send in a full credit package minus the appraisal, title, etc. so that we can get the full picture.

INCOME: RESIDUAL

If borrower shows losses on taxes we would need to further evaluate those losses and use against income if necessary.  If they are ongoing businesses then yes they would need to be used.  A short residual does require a LESA unless there are compensating factors to use.   If borrower has no income, and only is a negative income then a LESA would not make up for that.

LESA (Life Expectancy Set Aside)

If someone who applies for a Reverse mortgage has bad credit or did not pay their taxes, HOI or HOA on time, then HUD requires that we collect funds for a LESA, which is somewhat like an escrow account in the forward world (except they collect it all upfront instead of monthly). They will collect at closing enough funds to pay taxes and HOI for a certain amount of years (it depends on the borrowers’ age).

Without seeing the entire file including the property charge payment histories, I cannot tell you if a LESA will be required or not. Looking at the credit report it appears that a lot of the collections are medical. A few of them are credit cards. You will need to provide evidence of all the medical information so that we can see if the dates match up. What concerns me is that there are a few current accounts with late payments. This makes it appear that the borrowers cannot manage their finances. Be prepared for a full LESA. Make sure that the borrower has enough equity to cover the LESA, if required at time of underwriting. They will need to qualify with all open collection accounts that are not medical or a charge off consisting of 5% of each balance as a payment.

MONTHLY PAYMENT

As long as they have sufficient assets in the account to cover the loan, then no, we do not count the payment.

NBS (Non-Borrowing Spouse)

An NBS cannot be added after close, the only way to add an NBS is with a refinance.

An NBS is not a borrower so their credit is only used in Community Property states. Any derogatory entries are not counted when evaluating need for a LESA. A defaulted student loan should not show on our CAIVRS if it completely belongs to NBS.

OCCUPANCY

If he has sold his residence that is 40 miles away the case will be easier to support.  If not, then occupancy will have to be very well supported by other means. The occupancy is the issue more than the seasoning. Is the duplex just one side or a 2 unit?  Is he retaining SFR? What is mortgage on SFR?

POA

They will have to get a conservatorship/guardianship for B2. Whoever they elect to serve as such- but it has to go through the court. It has to specifically appoint a person, specifically grant power to make decisions for lending, must specifically approve the HECM as well.

PROGRAM

Yes the LOC funds are available after the death of the first borrower’s passing so long as both spouses are on the loan and title.

PROGRAM ELIGIBILITY

As long as he didn’t get the cash back on a HELOC, he should be fine.

The lien seasoning you may be referring to has to do with non-HECM liens or HELOC’s that are less than 12 months old and borrower has taken more than $500 out. The HECM product has differences than the traditional forward FHA. If you have a new HELOC or second on the subject scenario we can provide you with additional clarification.

You cannot pay off debt with the HECM.  If borrower needs to pay off debt to qualify they would need to pay off with their own funds prior to close.

We will have to take a look at the whole file and how the two property scenario comes together.  They will have to qualify for that payment still and whatever new charges will occur on the HECM purchase.  It will need to make sense with a solid LOE as to why they are vacating.  The whole file will tell us more, i.e. size of property vacating vs size of new one.  Distance of the two properties etc.  So I cannot give you a firm answer on that other than to make sure you document it well. The wife will need to be an NBS due to her age as all borrowers must be 62 at time of closing.

Sounds like you’re on the right track, owner occupancy as you know is mandatory for a HECM. The borrower must be occupying the property as their primary prior to the time of application, we are typically looking for a year, anything less requires an exception. To support the exception an LOE, evidence they are now occupying, clarify if they own other property, build on providing proof they intend to use the subject as their primary. Let us know if you need anything else.

A denial does not show up on CAIVRS.  On a forward loan a denial will be input into FHA Connection, but not on a reverse.  There is no issue with applying with another lender after a denial elsewhere. The case number is only valid for six months from last activity.  It is likely this case number is expired and a new one would need to be ordered.

The HELOC would need to be paid off and closed to proceed without waiting.  You may need to document Source of Funds used for the pay off.

Generally, we can consider an exception at 6 months. A copy of their CD from the purchase and evidence of funds into the subject property will be needed with the HECM application.

Typically 12 months but we do allow for exceptions such as in the case of an inheritance etc.

Ownership less than a year requires an exception and additional documentation.  We typically need them in the property at least 6 months with evidence of investment into the property, evidenced with a copy of the CD and funds used to purchase the property.  Of course occupancy needs to be established and the purchase needs to be an arm’s length transaction to determine if an exception is warranted.

The best way to proceed would be to look into a HECM to HECM to add the spouse.   There is a benefit test (worksheet included on FA Worksheet tool) to be calculated, however adding a spouse usually qualifies for an exception.   By adding the spouse under the new NBS guidelines provides some protection.   If they proceed with a H2H both will need to be counseled.

That question should be asked of the current servicer of their HECM loan.   Most likely the NBS will not have protection under the new NBS rules unless the current servicer would make an exception.  

PROGRAM ELIGIBILITY: CONTINGENT LIABILITY

As we discussed there are a couple questions. Is the debt joint with daughter to meet contingent liability requirements to offset debt with evidence payments were made by daughter? If it’s an FHA loan, it must be sold or refinanced. Given daughter is using payment for tax returns, possibly they have an agreement such as installment land contract? With the information available at this point, they would likely be best to sell the home and start over with a reverse mortgage at a later point. Reviewing her worksheet, it would also be worthy to see how the borrower is able to manage with only SSI. Is there additional income that could be used such as asset dissipation, public assistance, border income, etc.?

PROGRAM ELIGIBILITY: H4P OCCUPANCY

The HECM for purchase does not allow non-arm’s length transactions so this would not be acceptable.

PROGRAM ELIGIBILITY: INCOME & RESIDUAL

PROGRAM ELIGIBILITY: LESA

PROGRAM ELIGIBILITY: LIFE ESTATE

We will need the life estate agreement and all remainder men counselled along with the borrower. As well as the following:  FHA permits mortgages to be insured if the borrower’s interest in the property is a Life Estate. However, to encumber fee simple interest in the property, the borrower and all holders of any future interest in the property must execute the Deeds and Right to Cancel at Closing. Holders of future interest do not execute the Note or other loan documents. A copy of our internal checklist for manufactured housing has also been attached to help you identify what we will be looking for.   Hope this helps, let us know if you need anything else.

PROGRAM ELIGIBILITY: MULTIPLE FHA LOANS, NBS

The father can get his own FHA as long as he can provide the evidence that the daughter has made the most recent 12 months payment from her own account and on time. We do not need to count the daughter’s mortgage in his FA as long as it has been paid on time. The NBS’s income can be used or it can be provided to show that she is self-sustaining and the residual can be dropped to just the borrower.

PROGRAM ELIGIBILITY: NON-BORROWING SPOUSE

The new NBS would not be entitled to the NBS rights since they were not married at the time of original closing. They should consider adding her to the loan as an NBS for protection.

She does not have to be on the loan, but we cannot ignore the NBS. Either way the PLF will be off the younger person.

You are correct that the calculations will be based on the youngest borrower. Since the wife is younger than 62, she will need to be listed as a Non-borrowing spouse. There is a separate table for the NBS.

PROGRAM ELIGIBILITY: OCCUPANCY

From an occupancy standpoint, HECM borrowers need to be living there 12 months, however exceptions can be made provided they are living in the property before application. An LOE would be helpful with the file. Vesting – there cannot be a break in chain. We can take off son, hopefully mom and dad have never been removed, and this would create a break in chain possibly. Any person remaining on vesting must meet HECM requirements, i.e. age, occupancy. Remember with FA the HECM borrowers will need to qualify for the household count (including son in residual and children/grand children living with borrowers). If the soon to be ex-spouse isn’t on title, they will likely need to resolve that issue outside of closing. Since the son is not a borrower, we would not typically require a divorce decree of settlement.

This would need to be very thoroughly documented. Generally people are living in nursing homes because they cannot live on their own. We would need to get further clarification and documentation that this borrower is able to return to their residence. All borrowers must occupy the subject within 60 days of closing.

PROGRAM ELIGIBILITY: OWNS ANOTHER HOME

He can purchase a new home as long as he can provide a copy of the purchase contract or MLS listing on his current home before closing.  If the current home has an FHA loan on it, he will need to sell it before or concurrently with the new loan. If the homes are near each other he will need to write a detailed letter explaining why he is downsizing, along with signing an owner occupancy disclosure. Borrowed funds are not allowed on HECM loans, so as long as he is liquidating his assets he should be fine.  

PROGRAM ELIGIBILITY: REFINANCE

A – We can consider an exception generally at 6 months. A copy of their CD from the purchase and evidence of funds into the subject property will be needed with the HECM application.

PROGRAM ELIGIBILITY: TITLE, COUNSELING, PROPERTY

PROPERTY

Unfortunately, there isn’t sufficient funds available for a set aside. You might check to see if there are some community groups or family willing to help with the required repairs. We need current receipt of income that can be covered with bank statements.

It will depend on the appraiser’s analysis of the property. If the “1 other in which he lives” is a separate building and the other 3 units are in a different building, then it will likely not be eligible. Please understand that I’m not able to give a full analysis until we see the appraisal. The main issue is if the units are in separate buildings. If they have 4 units but 3 in one building and then an SFR it will not be acceptable.

We cannot lend on working farms. It isn’t the acreage that is the problem. The nature of the use of the land requires them to do a commercial loan.

Broker Response to answer above: So, if the borrower retired and it was no longer a working farm, as long as we could find good comps, would we consider it then? I was under the impression that we weren’t interested in properties with a lot of acreage at all.

UW response: With comps we can do properties with acreage that highest and best use are residential. If these borrowers have filed a schedule F on taxes and property shows crops or whatever they farm, then it would be a tough sell to verify it is no longer a working farm.

We do not have a specific acreage limitation; however, property must be highest and best use as residential. With this much acreage it is a question of whether it is primarily residential in nature. It must also be compared to similar properties with like acreage to support this is common for the market. Of course, nothing in file should reflect this is income producing at all.

Yes, this needed to be re-disclosed within 3 days from when the approval was sent out. Unfortunately you’re out of compliance now as the approval from underwriting was complete on 10/13. This would now be a broker cure. *Going forward on Texas loans there should always be a survey fee of at least $500 disclosed on the initial GFE. Hope this helps. Let us know if you have any other questions.

HUD’s general guideline is that the appraiser must state if public utilities are available. If they are, are they financially feasible? If both are yes, then public hook-up will be required. 

PROPERTY ELIGIBILITY: 2 UNIT

We can lend on legal 2-4 unit properties, yes. The fact that this is worded the “home has an apartment on it” is concerning. If it is a true legally permissible 2nd unit/zoned 2 unit/separate meters etc. then we would process as a 2 unit and they would need to comp the same. If this is more like an ADU scenario where the other unit is smaller in size to the subject yet meets ADU definition then it would be done as a SFR with ADU not a 2 unit. So it will depend on the property.

PROPERTY ELIGIBILITY: ACREAGE

We do not have a specific acreage limitation, however, property must be highest and best use as residential. With this much acreage it is a question mark if it is really primarily residential in nature. It must also be compared to similar properties with like acreage to support this is common for the market. Of course nothing in file should reflect this is income producing at all.

PROPERTY ELIGIBILITY: ACREAGE, FARM

We cannot do loans for operating farms, no. Regardless of if the borrower is receiving the income from this, it is an income producing property and thus would not be highest and best use as residential.

PROPERTY: AGRICULTURAL

This question can be a little tricky and therefore requires additional information to be properly answered. Agricultural properties can be acceptable depending on the comps available; the amount of income the property is earning; is this income reflected on the 1040s and if so, which schedule and how much income, and, what is the hay used for (personal, friends, business). Please provide as much of this information as possible so that we can take a closer look.

PROPERTY: CHARGE REQUIREMENTS

On owner occupied properties: Home owners insurance must have a 12-month history. Taxes must have a 24-month history. HOA must have a 24-month history. If escrowed by current lender then confirm with a statement from the lender, and a 24-month history of making payments on time is required to be shown on the credit report. Do this for all properties owned (taxes not required on other properties).

PROPERTY: CONDO

The 30% primary occupancy is an FHA requirement so it does also apply to HECM loans.  Sorry for the delay, I wanted to make sure that was still the threshold.  As far as new construction, yes, we need the CO dated prior to the case assignment/application on a HECM loan.

PROPERTY: MULTIPLE HOMES ON ONE LOT

Well this is tricky because it sounds like it is a separate home. Two homes on one parcel can be legal, but must be legal and permitted as a 2 unit. This is a hurdle. Yes he would need to comp to similar, so this would be a challenge as well. 

PROPERTY: MULTIPLE PARCELS

Separate tax IDs can be a problem if the properties can be subdivided. If the improvements encumber both parcels then this is not a problem as the parcels could not be subdivided. When you have the home on one parcel and other outbuildings on a separate parcel then in theory it could be subdivided and is not eligible for HECM financing.

PROPERTY: NEW CONSTRUCTION

Typically land loans would be first disbursement of the construction loan, must have CO before starting HECM app, if they own land it would be structured as a refi, construction loan will need evidence of all disbursements to support seasoning requirements. Borrower cannot get more than $500, loan based on normal HECM PLF tables, unless they deed land to builder and go under contract.

PROPERTY: NEW CONSTRUCTION / LOW APPRAISAL

The loan will be based on lesser of sales price or appraised value.  If borrower is willing to pay more for a property, then we will use the appraised value and they will need to bring in difference with their own funds.

PROPERTY: VALUE & SEASONING

We use the appraised value regardless of seasoning. The appraised value has to make sense when compared to the purchase price.

PURCHASE CONTRACT DATE

So the purchase contract will be after the application? That is ok.

SELLER CONTRIBUTIONS

The seller can pay customary owner’s title policy and ½ of the escrow and that’s it. Still no other seller contributions.

UP FRONT MIP

On an FHA Loan the only time the borrower is eligible for an MIP refund is when refinancing to another FHA product and then it is applied as a credit to the new MIP. So, if borrower pays off loan early it is not refundable.

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