Frequently Asked Questions

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BORROWER SIGNATURE

Yes, signing with an “X” is acceptable. However, please note the following requirements for individuals signing with an “X”:

Signing with an “X”

There are times when a borrower will sign with an X. Most commonly this is due to the borrower self selecting the X as their signature or it is due to limited physical capacity which makes signing their original signature difficult. Signing with an X brings forth additional requirements.

In order to comply with HUD’s recommendations; two witnesses are required with each signature with an X. According to HUD this would satisfy their requirements so as to constitute a valid and enforceable contract/lien.

Recommended process to comply with witness requirements:

    1. Affiant to attest they understand what they are signing and how they understand it (reading it themselves or someone reading the docs to them)
    2. Documented approval from title permitting the borrower to sign with an X (email or standard form is acceptable)
    3. Doctor’s letter must be provided to verify they are mentally competent but not physically capable of signing
      AND
    4. State approved General affidavit complete with reason why they are signing with and X. An affidavit can be used in lieu of two witness signatures for every signature with an X. This is true and acceptable for both application and final closing documents.
      OR
    5. Two witnesses are required with each signature with an X.

A notary CAN be one of the witnesses but the Jurat of acknowledgement would NOT substitute for that individual’s (notary public’s) signatures as a witness to the signing. A notary need not, under the laws governing notaries public, actually witness a signature/mark in order to notarize a signature. As such, the Jurat and/or acknowledgement of the signature would not suffice.

 

CONDO PROJECTS

Since this is an FHA insured loan, the requirements will follow FHA rules. The Condo project must be FHA approved. There are no limitations for the number of HECM mortgages allowed in a given Condo project.

COUNSELING

In compliance with state specific counseling regulations, it is prohibited to  waive 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.

An application may be taken prior to the FHA Case Number being issued and Counseling Cert received. The counseling certificate can be provided either prior to or after the loan application. However, an FHA Case Number cannot be issued without the borrower completing counseling and receiving the counseling certificate and an FHA appraisal cannot be ordered without an FHA Case Number being issued. Therefore, it is imperative the borrower completes counseling as soon a possible and receives their counseling certificate to start the application process.

COUNSELING CERTIFICATION

The counseling certificate expires after 180 days from the date of counseling. However, the counseling certificate is good for the duration of the transaction IF, the 1009 application and the FHA Case Number assignment are dated prior to the expiration of the counseling certificate. The application must be taken while the certificate is valid. If the certificate expires prior to the initial application completion, the borrower must be re-counseled. No Exceptions.

Except in Texas, where the counseling certificate expires after 180 days from the date of counseling. If expired the borrower must be re-counseled and a new counseling certificate issued.

CREDIT

Credit scores are not utilized on HECM loans. Credit is evaluated based on the borrower’s credit profile/payment history, etc.

CREDIT BANKRUPTCY

HECM refinance, for CH 7 BK must be discharged or dismissed in order to proceed with the HECM mortgage. If less than 1-year, extenuating circumstances must be explained/documented or, a LESA is required.

HECM for Purchase CH 7 BK must be discharged for 2 years. If less than 2 years but not less than 12 months from the discharge date, a LESA is required unless there were extenuating circumstances which caused the CH 7 BK Discharge.

As this is a HECM refinance, at a minimum BK must be discharged or dismissed to proceed with the HECM refinance.

It will depend on the borrower’s overall credit. And whether they have paid their credit and  Property Charges timely since the BK discharge date. If the CH 7 BK was due to an extenuating circumstance (death of a spouse for example) and 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 she will need to have clean credit for 2 years since the BK discharge date to allow for no LESA.

CREDIT DEROGATORY

A borrower’s overall credit history is evaluated to meet HUD’s HECM program guidelines as follows:

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.

If a borrower does not meet this criterion a LESA may be required unless there were extenuating circumstances which caused the borrower’s inability to maintain acceptable credit that can be explained and satisfactorily documented.

CREDIT DEROGATORY SHORT SALE

H2H

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

HELOC SEASONING

Payoff of a HELOC is allowed if the lien has been in place for more than 12 months, if it has been open for over 12 months HUD does not care about draws.

If the HELOC lien was opened within the last 12 months the HELOC can be paid from HECM proceeds.

INCOME

To use income on rentals the  borrower must have filed tax returns with Schedule E Rental Income. If the properties were acquired since last tax filing leases may be used. However, if the properties have been owned for a while they must be reporting on taxes to use income.

Employment and income must be verified for at least the most recent two years to satisfy minimum employment history requirements. With the borrower’s long job gap and her recent return to work in a completely different field you would need to establish a prior work history and build the case of her new employment along with demand and likelihood of continuance. The borrower would have to be on the current job for at least 12 months and averaging of current income would be necessary. We are able to use projected income, i.e. SSI, if it begins within 60 days of closing and can be satisfactorily documented with the Award Letter.

Since the borrower would have received a partial SSI Check, the borrower should have also received an Award Letter. The Award Letter received from Social Security would be required in addition to receipt of the social security income to consider this income for qualifying.

However, if the borrower has applied for Social Security but, will not receive it within 60 days of closing, it is considered “Expected Income”

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.

The borrower must be able to meet residual income guidelines for FA which, would include documentation of income per FHA HECM program criteria.

INCOME: DOCUMENTATION

The most recent two years tax returns OR tax transcripts are required on every loan. We can accept one year or possibly even no taxes/transcripts, on a case by case basis. However, this will generally be a standard condition on each file.

Self-employed borrowers will require tax returns filed for the most recent two year tax periods and will require YTD P&L if the timeframe is  past the 1st quarter of the year.

For employed borrowers as of the end of January 31st W2s for the most recent two years..

For our SSI borrowers  a 1099 or Award letter as well as documentation of current receipt with a complete bank statement.  We can accept an older 1099 as long as current receipt of SSI is documented. If it is a recent award letter, current receipt with a complete bank statement would be required.

INCOME: EMPLOYMENT

INCOME: EMPLOYMENT, PART-TIME

INCOME: RESIDUAL

If borrower shows losses on taxes, we would need to further evaluate the losses and count them 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)

Yes, it is possible however there are some requirements which must be met for the HECM program based on credit qualifications. If someone who applies for a Reverse mortgage has derogatory credit history or did not pay their taxes, HOI or HOA on time, a Life Expectancy Set Aside (LESA) may be required. However, the borrower must provide a detailed explanation for all derogatory credit history with supporting documentation. If the Underwriter determines the borrower had extenuating circumstances based on the borrower’s explanation and supporting documentation a LESA may not be required. A LESA is somewhat like an escrow account in the forward world (except the amount is established upfront instead of monthly, and a Set Aside amount is established by the Servicer). The LESA calculation is based on the amount to pay taxes and HOI for a specific amount of time based on the borrowers’ age.

Without seeing the entire file including the property charge payment histories, it is not possible to determine if a LESA will be required or not.  To be able to establish whether a LESA would be required, evidence of all the medical information must be provided to determine if the dates match up. However, be prepared for a full LESA to be established. Ensure the borrower has enough equity to cover the LESA, if required, at time of underwriting. The borrower must 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

If they have sufficient assets in the account to cover the loan, then no, the payment would not be counted.

NBS (Non-Borrowing Spouse)

An NBS cannot be added after close. The only way to add an NBS would be to refinance and add the NBS.

An NBS is not a borrower therefore, their credit is only used in Community Property states. Any derogatory entries are not counted when evaluating the need for a LESA. A defaulted student loan should not show on 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.

Some important questions to consider:  Is the borrower retaining a SFR? What is the mortgage on SFR?

POA

They will have to have a conservatorship/guardianship for B2 to move forward with a HECM. Whoever they elect to serve as such, must be approved through the court. It court has to appoint a person to specifically grant power to make decisions for lending, and must state they are  approved to apply for  the HECM for the individual they are the Conservator/Guardian for.

The POA must be submitted to 1st Reverse underwriting as early as possible for review and approval.

PROGRAM

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

PROGRAM ELIGIBILITY

As long as he didn’t get the cash back on a HELOC, this would be acceptable.

Ownership less than a year requires an exception and additional documentation. Typically the borrower must own 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. Occupancy must be established and the purchase must have been an arm’s length transaction to determine if an exception is warranted.

The lien seasoning 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 mortgage.

No, debt cannot be paid off at closing with the HECM. If borrower needs to pay off debt to qualify they would need to pay off the obligations, with their own funds prior to close.

It is possible however until the whole file can be reviewed by the Underwriter, and how the two-property scenarios come together, a firm answer cannot be given. However, the HECM borrower will have to qualify for the payment still and whatever new charges will occur on the HECM purchase. The transaction will need to make sense with a solid LOE as to why they are vacating their current primary residence. The Underwriter must review the whole file and determine if it meets HECM program guidelines, i.e. size of property vacating vs size of new one, distance of the two properties etc.  Note: The wife will need to be an NBS due to her age as all borrowers must be 62 at time of closing for the HECM program.

The best way to proceed would be to look into a HECM to HECM to add the spouse. There is a benefit test to be calculated, however adding a spouse usually qualifies for an exception. By adding the spouse under the 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. However, the husband will not have protection under the HECM program. To add the husband as a borrower they should consider doing a HECM to HECM loan.

Based the scenario this appears to be acceptable. Owner occupancy is mandatory for a HECM. The borrower must be occupying the property as their primary residence prior to the time of application, typically for a year, however, less time requires additional review by the Underwriter. The borrower must explain in detail the overall situation, provide satisfactory evidence they are now occupying, clarify if they own other property, build on providing proof they intend to use the subject as their primary. The whole file with all documentation must be submitted before a definite underwriting answer could be provided.

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 FHA case number is valid for six months from last activity and must be transferred to the new lender.

The HELOC would need to be paid off and closed to proceed without waiting. Documentation for the Source of Funds used for the pay-off of the HELOC would be required.

At least one borrower must have been on title to the subject property for a minimum of 12 months unless one of the following scenarios exists:

    1. Purchase transaction
    2. The property was recently purchased
    3. The borrower inherited the property evidenced by supporting documentation (probate documents, Transfer Deed, etc.)
    4. Borrower obtained title to the property from an immediate family member. Additional documentation evidencing the borrower(s) have been occupying the property as a primary residence must be provided.

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 (H4P) program does not allow non-arm’s length transactions therefore this situation would not be acceptable.

PROGRAM ELIGIBILITY: INCOME & RESIDUAL

There are a couple of options with this scenario: Option (1) would be to use only borrower income/expenses and use household size of 2. If she cannot qualify that way, then Option (2) provide documentation of daughter’s income and use household size of 1.

PROGRAM ELIGIBILITY: JUDGMENTS

    1. If judgment is not attached to the property it is not considered a mandatory obligation and pay-off will not be allowed at closing.
    2. If the judgment is reflected on the credit report (not on the title), then evidence of a minimum of 3 months timely payment history along with a copy of the agreement or evidence of payment in full prior to closing the loan (HECM proceeds cannot be used unless it is a lien secured on title).
    3. If the judgment is attached to the subject property, payoff will be required through escrow at closing, as it would considered a mandatory obligation.

PROGRAM ELIGIBILITY: LESA

PROGRAM ELIGIBILITY: LIEN SEASONING

Yes, the payment history of the lien is required, also the note, deed, or other documentation. HUD requires lien seasoning on any non-HECM lien that is to be paid off using proceeds of the HECM loan. HUD will only allow the pay-off of an existing non-HECM lien if the lien has been in place for more than 12 months or if the lien resulted in less than $500 cash to the borrower prior to the application date of the loan.

    • If the lien is in place less than 12 months, HUD requires:
      • HUD-1 From the transaction that resulted in the lien
      • Pay-off Statement
      • If applicable, the Home Equity Line of Credit (HELOC) statements from the date the HELOC was opened to ensure that it resulted in less than $500 to the borrower, whether at closing or through cumulative draws.
    •  If the liens do not meet the seasoning requirement, they may not be paid off using the HECM loan proceeds. They would be required to be paid with the borrower’s own funds prior to close.

PROGRAM ELIGIBILITY: LIFE ESTATE

The life estate agreement and all remaindermen counselled along with the borrower is required. 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.

The Manufactured Home must meet FHA’s requirements to be eligible for FHA financing.

  1. Eligibility Guidelines:
    • Completed on Appraisal Form 1004C for Manufactured Housing.
    • Floor area of at least 400 square feet.
    • Constructed after July 15, 1976.
    • Built and remains on permanent chassis.
    • Axles and tongue must be removed.
    • Permanent utilities installed.
    • Permanent skirting around the perimeter.
    •  Meet county and HUD requirements for any additions.
    • Designed as a dwelling with a permanent foundation built to FHA criteria.
    • Be on the original site. The home may not have been installed or previously occupied at any other location.
    • Have all HUD tags on the outside of the house. Multi-wide units display a label on the outside of each unit.
  2. Manufactures Homes ineligible for HECM:
    • Singlewide Units
    • Condominium (Manufactured homes in a condo association)
    • Homes built prior to June 15, 1976
    • New Construction Manufactured Homes (less than 1 year ago)
    • Homes moved from original site
    • Homes previously installed or occupied at another site
    • Homes installed in a flood zones or partial flood zone

The unit must be permanently affixed to a foundation and taxed as Real Property. An Engineer’s Report for the Foundation would be required to establish the foundation complies with FHA’s requirements for FHA financing.

PROGRAM ELIGIBILITY: MULTIPLE FHA LOANS, NBS

The father can get his own FHA mortgage if 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 if 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 calculated based on 1 person (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.

The wife doesn’t have to be on the loan but, we cannot ignore the NBS. The PLF will be based on the younger person.

Correct 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

This would need to be very thoroughly explained and documented before a determination can be made. Generally, people are living in nursing homes because they cannot live on their own. We would need to get further clarification and satisfactory 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

They can purchase a new home if they can provide a copy of the purchase contract or MLS listing on the current home before closing. If the current home has an FHA loan on it, they must sell it before or concurrently with the new loan. If the homes are near each other they must write a detailed letter explaining why they are downsizing, along with signing an owner occupancy disclosure. Borrowed funds are not allowed on HECM loans, they can liquidate assets to purchase the home but, borrowing funds are not acceptable.

PROGRAM ELIGIBILITY: REFINANCE

At least one borrower must have been on title to the subject property for a minimum of 12 months unless one of the following scenarios exists:

    • Purchase transaction
    • The property was recently purchased
    • The borrower inherited the property evidenced by supporting documentation (probate documents, Transfer Deed, etc.)
    • Borrower obtained title to the property from an immediate family member.  Additional documentation evidencing the borrower(s) have been occupying the property as a primary residence must be provided.

PROGRAM ELIGIBILITY: TITLE

There is no time limitation prior to loan app.  If they are on title after loan app and plan to come off before closing, then they too must be counseled.

They could do it either way, but the easiest way would be for her to come off the loan. She would still need to attend counseling and sign a few documents at closing. She would not fill out the application, she would just need to take counseling and sign a few closing docs. In addition, since they are not Divorced and still considered Married, the wife is considered an ineligible NBS. If this is a community property state, her credit must be verified, and all joint obligations would be considered for the borrowers FA and Residual calculations.

PROGRAM ELIGIBILITY: TITLE, COUNSELING, PROPERTY

Anyone coming off title whether at closing or before, must be counseled. So, either way is fine. Working farms are not eligible for HECM. The Appraisal will establish whether the property meets FHA HECM program requirements.

PROPERTY

A repair set-aside may be established for minor repairs on a HECM Refinance if there is adequate equity. However, all health and safety items must be repaired prior to close as they cannot be included in a repair set-aside. You might check to see if there are some community groups or family willing to help with the required repairs. The HECM appraisal will identify all of the repairs required to be completed for the property to be in compliance with FHA property standards.

Yes, re-disclosed should take place within 3 days from the approval date.

It will depend on the appraiser’s analysis of the property. Please note until an FHA appraisal is received we cannot determine if the property meets FHA minimum property requirements.  If they have 4 units but 3 in one building and then an SFR. The appraiser is required to use like properties as comparable to establish value.

Please note: working farms are not acceptable property for the HECM program. It isn’t the acreage that is the problem. The nature of the use of the land (income generating working farm) would require them to do a commercial loan.

The HECM does 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. The property cannot have any aspect of income producing.

PROPERTY ELIGIBILITY: 2 UNIT

The HECM program allows  2-4-unit properties which meet FHA property requirements.  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 an SFR with ADU not a 2 unit. So, it will depend on the property.

PROPERTY ELIGIBILITY: ACREAGE, FARM

The HECM program property requirements does not allow for operating farms. Therefore, this property would not be eligible for the HECM program.  This property is considered an income producing property and thus would not be highest and best use as residential and not eligible for the HECM program.

PROPERTY: AGRICULTURAL

Agricultural zoned properties may be acceptable depending on the comps available, and the primary utility of the property being residential. However, the primary utility of the property must be residential and the highest and best use must be residential not something else. Income producing property is not eligible for the HECM program. If the borrower filed a Schedule F (Farm Income) for the subject property, this would make the property ineligible for the HECM program as it would be income producing.

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 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. This is also required for all Real Estate owned.

PROPERTY: CONDO

The Condo Project must meet FHA Condo requirements and be on FHA’s approved Condo list to be eligible for a HECM.

PROPERTY: CONDO APPROVALS

Spot condo approvals are not eligible. The whole project must be FHA approved to be eligible to obtain a HECM or other FHA financing.

PROPERTY: FLOOD CERTIFICATE

A LOMR (Letter of Map Revision) will be required to be obtained. To obtain a LOMR please go to FEMA’s website to fill out the request and pay the fee. The website will provide all directions on how to obtain the LOMR.

PROPERTY: MULTIPLE HOMES ON ONE LOT

Two homes on one parcel may be acceptable but, must be legal and permitted as a 2 unit. The Appraiser must use similar property as comparables to support and establish value.

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. However, both parcels must currently be included on one deed to be eligible. If they are currently on separate deeds this would not be acceptable at all.

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

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

PURCHASE CONTRACT DATE

The purchase contract date being after the application date is acceptable.

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