Search questions by word or phrase.
ASSETS: FUNDS FOR CLOSING
Funds for down payment. I have a client that owns a home out of state. He wants to purchase a primary residence in Texas where he currently lives in a rental unit for the past couple of years. He is taking a home equity loan out on the property out of state and wants to use that for his down payment and closing cost. Is that acceptable?
HECM prohibits borrowed funds for closing, this includes getting a bridge/HELOC etc. from an existing property to fund the HECM transaction.
I’m working with an older prospect. He has some physical limitations that might make it impossible for him to sign the full application. Is signing with an “X” or mark acceptable?
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.
Are there limits to the number of reverse mortgages that can be done within an FHA Approved Condo complex? Or does this vary per complex?
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.
I am requesting that you waive the Counseling for my clients. They purchased with a reverse loan about 23 months ago 12/2014 with your company and they do not want to do the counseling again, they feel it is a waste of time for them because they understand what they are doing regarding the HECM to HECM refinance.
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.
I just had a customer ask me about phone counseling. I did not realize this, but the list of phone counselors on the disclosure are not valid in Minnesota. Are there any that do provide phone counseling in Minnesota?
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…
This does not preclude the counseling agency from providing counseling over the phone.
It is my understanding with the changes HUD announced last month (10/02/2017), that a loan can be submitted without a case number or counseling certificate and would then be conditioned for those items prior to closing. Is this correct?
No, the FHA case number is required up-front. However, the counseling certificate can be provided either prior to or after the loan application.
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.
We do not use credit scores on HECM loans. We go off their credit profile/payment history, etc.
LO has a client that filed for BK #7 and was discharged in January of 2017. How long would this borrower have to wait to apply for a Reverse Mortgage refinance to pay off her mortgage, WITHOUT having to put a LESA on the file, assuming the client had re-established credit which was paid on time?
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.
What’s the least amount of time from the discharge of a BK that someone can do a HECM if they have substantial and documentable extenuating circumstances? Is it one year or two?
At least one year with documented extenuating circumstances on a HECM.
How many 30 day late payments are allowed in last 12 months and 24 months, in order to qualify for a HECM?
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
Borrower will be purchasing; had a short sale July 2017. What are the guidelines on this transaction please?
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.
18 months on H2H is closing date of original HECM to our new case assignment.
There used to be or maybe still is, a guideline that said a borrower had to wait a year after they took a draw of over $500 from a HELOC to close a reverse mortgage to pay off that HELOC. Is that guideline still in effect? Has that changed recently?
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.
Have some questions regarding income calculations and how 1st Reverse looks at things. Is there an UW I can talk to? Do you guys have a process for income review as part of the pre-approval process, so we don’t have last minute qualification issues especially on the builder deals?
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.
Borrower is S/E but tax returns only support about $267 in income. The borrower is 67-68 and has not yet applied for his SSI benefits, however, he did call and has a case # and can get confirmation of his application. The question is regarding his receipt of the SSI income. He will most likely not get his first check until mid-November and it probably won’t be a full check, per the LO. The loan is trying to close by the end of November. Will the case #, Confirmation of application for SSI and a partial check be enough to close the loan? In addition, the LO stated that the Borrower has enough cash to buy the house, however, is wanting to do a reverse mortgage to purchase this new build.
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.
I have a borrower that has made an offer on a property and she’s interested in a HECM purchase loan. She doesn’t receive Social Security yet (although she was born in 1948 so she could) but she is currently employed through a temp agency earning $21/hour and working 40 hours a week. She’s had 5 years of experience in the industry (accounts receivable/collections) but has only been on this job since March of this year because she recently relocated to WA from CA. Prior to this she was a part-time caretaker for her mother in CA for 13 years. My question is, can we count her income if she’s technically a temporary employee (independent contractor)? Or would she have to be a full-time W2 employee for this to work. She’s earning $3,600/mo so she more than passes the FA if we can count the income.
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.
I have some questions regarding calculating income and expenses. My client derives his income from SS and rental income. Do you count the basement square footage when calculating utilities and maintenance? Can I add back the mortgage payment to the tax return income since we would be paying it off? Since he files a schedule E would we add back any maintenance and utility costs since they would be included in the 14 cent maintenance costs? And I presume we would add back taxes and insurance since it shows on the FA also. Can you help me with this or do I need to speak with an underwriter?
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.
I have a nontraditional situation. Customer lives in a $600K home. Has a $350K mortgage which is current. Is 74 years old. Numbers work for the FA the Income is derived strictly from home rentals (3). Average monthly income is $2200. Renters pay cash monthly but some cases pay two & three months in advance. Customer has a rental agreement for each of the properties. Has good history of paying taxes and insurance on primary as well as rentals. What are the acceptable forms for proof of income? Cash flow through bank account? She does not file income tax so no history to track. What else do you recommend?
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.
Is there a way to get someone through FA if they have NO income and NO assets? He will not be on Social Security for 3 more years and lost all his assets in a divorce. He has a home appraised at 500K free and clear and pretty bad credit, probably a LESA candidate at best (75K in lifetime LESA set aside) , he is 62.
They must be able to meet residual guidelines, so with no income, there is no way for him to meet residual.
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.
We need 30 days paystubs before we can close on an FHA purchase for someone who started a new job, correct? It’s in the same line of work. Or would 1 stub suffice?
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
We’re short on RI as we have to count this ladies Student loan debt. She has been working Part-Time for years and recently accepted another Part-Time assignment. The questions are; can we use this income and if so, how much? What other documentation would we need to get?
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: IRA WITHDRAWALS
I have a client whose source of income is a monthly withdrawal from her IRA. She’s been receiving it for at least 6 months and it may be 9…she’s not sure when it started. It’s been set up through the administrator and she gets 2000/mo. Her balance is approx. 90k in the IRA. Can we use that as her income source when working up the FA? (I know w/ a forward mortgage as long as there’s 3 years continuance of income we’d be fine and 2k x 36 months would be 72k so that would work.)
Yes you can use this as income source for HECM. Provide one month’s complete IRA statement and document withdrawals.
I have a borrower who has insufficient cash flow, if we use tax returns they have a negative cash flow (not sure if we need to include these regardless or not)? If we do a fully funded set aside are they able to still get approved for a reverse or do they need to meet the residual regardless? Great credit, no late payments in last 12+ months.
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).
I have a couple that is selling their current home in upper Michigan moving to the Sheboygan, WI area to be closer to their grandchildren. They have an offer on the sale of their home for $275,000 and should be netting about $90,000 from the sale. They are looking at homes priced around $120,000 with taxes and insurance payments of about $300 per month. He is 74 and she is 63 years old. His income is social security of $1890 and a pension of $369; her social security is $734 for a total of $2,993 per month. What caused the credit issues is she had surgery in 2012 and she had no income for about four years. He had major surgery in 2013 and again in 2014. The bills accumulated and they did a cash out refinance and paid off as much as they could. I have attached their credit report. I do not want to present this as a possibility until I know more of what we can offer them.
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.
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)
Can a borrower add an NBS to title after the reverse mortgage closes? What violations exist, if any, if they do so?
An NBS cannot be added after close, the only way to add an NBS is with a refinance.
I can’t find the qualifying guidelines for NBS – credit. If the NBS has defaulted on a student loan does that discredit the borrower from doing a reverse mortgage?
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.
Senior has owned a duplex for 5+ years. It was rented out all that time. He is moving from a residence 40 miles away to make this his homestead. Driver’s license has been changed and all bills are in his name. He just moved in 12/2017 into the duplex. Am I going to need a seasoning period or can I proceed forward.
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?
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.
If one of the borrowers on the HECM line-of-credit dies, can the remaining borrower still drawn from the loan to pay funeral or other expenses incurred after the death?
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.
The borrower did a R/T Refi through VA approximately 3 months ago. He now wants to do a HECM loan. We want to know if he is disqualified because he got more than $500 out of the R/T refi. Can you check with HUD to see if there are any exceptions to the rule on this one?
As long as he didn’t get the cash back on a HELOC, he should be fine.
I’m looking for the rule on lien seasoning (if any) as opposed to ownership seasoning. Borrower has been in residence for 15 years.
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.
Are we allowed to pay off revolving debt at closing using proceeds from the reverse mortgage in order for a borrower to meet the residual income guidelines?
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.
One of our LO’s has a borrowers that own a home (primary). They have an existing conventional loan. They have quit claimed off of the home and gave it to their son and daughter. They are still on the loan. They would like to purchase a new primary residence with a reverse mortgage. He is 65 and she is 57. They will be moving to this new home and making it their primary. Actually they are under contract with a closing date of Nov 26 or 28. Can a couple purchase a home with a reverse mortgage if one of the spouses is under 62? Is the past primary home, which is soon to be an investment property, an issue?
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.
Client lived in their home for 15 years and then rented it out. They downsized and moved into a mobile home because of its proximity to a volunteer opportunity they wanted to serve with. Now three years later, the husband’s disability has worsened and the wife has tired. Their tenant gave notice so they’ve decided to move back into their single family home as their primary residence. They will be moved back into the home before applying for the reverse mortgage. This sounds acceptable to me. Do you see any objections or problems? Other than a letter of explanation and making sure their driver’s licenses reflect the subject property, is there anything else we should be concerned with?
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.
I have a reverse mortgage loan that was “prematurely” turned down by another lender while the borrower was in the process of obtaining new employment. Does the denial show up in the system (CAIVRS, etc.) and prevent the Borrower from being approved if it is resubmitted with your company? How long is a Case number in effect? I believe that the Borrower’s was generated in August 2017.
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.
A woman took out a HELOC and drew $25K out of it 3 months ago. If she pays the $25K back and closes out the HELOC, can she do a HECM or does the 1 year waiting period apply?
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.
I have a customer who would like to refinance and pay off their existing forward loan. They have only been in their home for 4 months. Am I able to do this loan? They have no other property.
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.
Two scenarios – one with current 1st mortgage of $158,000 and one scenario if she takes out a new Fannie-Mae 1st of $208,000 and then gets a Reverse Mtg. Is there any kind of seasoning requirement on the new Fannie-Mae 1st before we can pay it off with a reverse?
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.
I have a client that I did a reverse for a few years back. Her husband was not old enough to do the reverse mortgage so she is the only one in title. They want to know how to put him on title? I did this loan back before the non-borrowing spouse had any rights. I did not want to tell them to just add him so what is the protocol for this situation? I doubt there is enough equity to refinance.
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.
Would any of you know if my client were to quit claim her husband back on to the title would that trigger the loan to come due. Or, is it legal under the new guidelines for non-borrowing spouses?
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
I received a call from a 62-year-old lady and her daughter who has been doing a reverse mortgage for about 3 months. It’s a refinance. She already has her counseling and her appraisal done. Her home appraised for $450,000 and the loan amount they are giving her is $280,000. They said that is the max they would give her. Her home is free and clear. She also owns another property that her daughter lives in. After 3 months of dealing with this company the loan officer (who is also a Realtor) called and said that they had to list the house that the daughter is living in for the reverse mortgage to close. The daughter has been paying for the mortgage. They are also asking for 3 years of proof of mortgage payments. Why would they ask for the house to be listed? Not sold, just listed. We were thinking that since the loan officer is also a Realtor, could he be trying to get a listing as well? He did tell them he does not do many of the Reverse Mortgages and is just trying to get back into them. Why ask for 3 years proof of mortgage payments? It’s on her credit report. They are not asking for proof of the daughter paying it. Some of these things do not seem normal especially after 3 months of processing the loan. I was hoping you could give me some insight? If they were to switch their loan to me, their counseling and appraisal would transfer correct? How long would the process take since both of those items are done?
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
Daughter, in her 40’s lives with her Mom (whom the reverse would be for). The daughter has cerebral palsy and I’m not sure how you define self-sufficient but I believe she lives with her mom as it saves money for both of them and it just makes getting around easier. That said, how do I work residual income? Do I call it a 1 or 2 person household?
You can do this two ways. 1st would be to use only borrower income/expenses and use household size of 2. If she cannot qualify that way then you can provide documentation on daughter’s income and we can use household size of 1.
PROGRAM ELIGIBILITY: JUDGMENTS
This file is credit approved with a full LESA. The borrowers have an outstanding judgement for $7227.00, which only appears on their credit report, not on title. The borrowers do not have the funds to pay off the judgement. Can we allow them to pay it off through closing?
HUD does not allow this on a HECM transaction.
PROGRAM ELIGIBILITY: LESA
HOA fees are not required to be included in a LESA.
PROGRAM ELIGIBILITY: LIEN SEASONING
Updated Prelim title on the property reflects as of October 20th, 2017 there is now a $50,000 Deed of Trust on the property and the judgements have been cleared, that were showing previously. The lien appears to be a private party lien. Do we have to wait to season this lien for a year? Will we need a payment history on this lien? Is there anything else that you can think of that we will need?
If the borrowers want to pay off the $50,000 DOT with the proceeds of a new HACM, then yes, 12 month seasoning will be required. Yes, we will need the payment history of the lien, also the note, deed, or other documentation of it.
PROGRAM ELIGIBILITY: LIFE ESTATE
Title is vested in Life Estate. This is also a Mobile Home that has been converted to Real Property. What is needed to make sure this runs through Underwriting correctly and smoothly?
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
1) Father co-signed an FHA loan for his daughter as a non-occupant co-borrower. Father now wants an FHA Reverse Mortgage on his primary home. He has 12 months proof she is paying the mortgage. Can Father enter into another FHA loan? If so, do we need to provide 12 or 24 months proof daughter pays the mortgage to consider this a contingent liability? 2) If Father can do an FHA loan on his primary, do we have to count daughter’s mortgage in his FA? 3) Father’s wife is 58 and will be a NBS. If we take her off title to close the loan, can we count her income in the FA?
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-ARMS LENGTH TRANSACTION
Borrower owns a home that currently has a HECM. She doesn’t like the area of town so she has it listed on the open market so that she can sell it and buy one that her son owns; he has several rental properties. Is this allowed or does the arms-length aspect interfere with the HECM?
Mom cannot buy from son, this is non arm’s length and does not qualify for HECM.
PROGRAM ELIGIBILITY: NON-BORROWING SPOUSE
I have a borrower that I did a HECM for 2 years ago. He has since remarried and wants to refi his loan and make his new spouse a Non-Borrowing spouse (she’ll be 61 next March). Does he need to refinance in order for his spouse to gain the benefits of being a non-borrowing spouse, should he pass away, or is that up to the loan servicer? The closing costs would run around $4,400 on a Fixed Rate (5.06%) and he would only “net” an additional $14,000 in cash at closing, so it doesn’t quite meet the guidelines for a HECM to HECM refi but the reason he’s motivated is because of the new, non-borrowing spouse. The extra cash would be a bonus. Can he refinance in this situation?
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.
Please confirm my opinion (or HOPEFULLY I am wrong!), Sheila has an 87 year old client with a 74-year-old wife, he wants to do a HECM and not have her on the loan, (they were recently married) we cannot do an NBS under these conditions can we?
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.
Husband is 75, and wife is 58. I believe that wife can go on the loan, but we would use wife’s age to determine the principal limit. Is that correct? If so, why don’t the tables go below 62 years?
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
Reverse mortgage objective: Allow Paula and Howard (senior home owners) to continue owning this home as their primary residence. Allow Paula to divest herself from his partial ownership of the home and finalize settlement with her ex-husband. Do we have a primary residence or seasoning issue? Can a lien be placed on property by the ex-husband, as a portion of the divorce settlement, and still allow the reverse mortgage to proceed?
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.
A borrower lives in a nursing home and intends to return to their primary residence, but needs to do some home repairs before moving back to the home. Can the borrower do the reverse mortgage while living in the nursing home (showing proof of their primary residence) and then move back to the primary residence once the repairs are completed?
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
My borrower will be listing his current home Jan 1. He wants to downsize and found the perfect home, but will need to make the offer ASAP. He will be using his investment securities for the down payment. Will there be any problems with him still owning current home and borrowing from his securities?
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
I have a customer who would like to refinance and pay off their existing forward loan. They have only been in their home for 4 months. Am I able to do this loan? They have no other property.
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
I have a borrower inquiring about a reverse mortgage, but she has added two of her adult children on title to the property with her. I’m assuming the children would need to come off title for her to do a reverse mortgage. If so, is there at time frame that they must be off before she can proceed with a reverse mortgage?
There is no time limitation prior to loan app – just before loan app. If they are on title after loan app and plan to come off before closing then they too must be counseled.
Borrower is married, but separated. He and his wife own three homes which are paid off. They each live in one of those homes separately. Borrower wants to do a reverse mortgage on the home in which he lives. He says his wife is agreeable to signing the documents. However, she is also agreeable to coming off title during the HECM process. Which is the preferred process and how should I advise him?
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.
PROGRAM ELIGIBILITY: TITLE, COUNSELING, PROPERTY
I have a mother and daughter on the same deed. Done about 2007 when the father passed away. Her farm ground was put in a living trust. The mother lives in the home by herself. The daughter lives with her husband in a different house. The daughter is coming in with her husband next week to talk about the HECM so they understand it for the mother. I don’t want them to mess anything up. Is it ok to take the daughter’s name off the deed now?
Anyone coming off title whether at closing or before, must be counseled. So either way is fine. Is the property the farm ground? We cannot loan on farms. We do not lend on farm properties, however, we can review on a case by case basis. It cannot be a working farm.
PROGRAM ELIGIBILITY: TRUST
I have a prospect I’m working with that has a living trust and a spouse that is not on title, he would like to keep it that way. He wants to know how the reverse mortgage would work if he has an NBS and trust naming her as a successor trustee. Is there anything we have we can send him?
Generally for trust information we refer borrowers to an attorney as we cannot really speak to the intricacies of a trust and how they work.
I talked to my client about a HECM. She says the current mortgage is in a Revocable Living Trust. Her two daughters are her two beneficiaries at 50% each. You had said: All beneficiaries of the trust must be eligible borrowers at the time of origination and until the mortgage is released (i.e. borrower/beneficiary must occupy the property as a principal residence). Does this mean that the two daughters must occupy the property as a principal residence along with their mother for them to keep the title in the Revocable Living Trust?
They can be contingent beneficiaries but cannot be the primary.
Are we able to do a repair set aside? There is no way the borrower can front the money. Also, since he just gets Social Security income and food stamps, we don’t need to update that do we? Can we do a VOD for the assets if we need any assets?
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.
I am working a loan with a guy who says his home is taxed and recorded as a 4-plex. It is a 3 unit building and 1 other in which he lives. Is this going to be an FHA compliant 4-plex?
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.
I have a Realtor with a friend that she feels could use a HECM but it’s a working farm on 40 acres. I told her it would be very difficult to find comps, but it appears that she has some. Even so, would we even consider this property for a HECM, regardless of the comps?
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.
Broker has a borrower with 166 acres. She says it used to be a buffalo ranch but the buffalo have all been sold so it is not an income producing property. Is the 166 acres a concern when lending on a HECM loan?
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.
Do we have any issue in the way an appraiser might comp and adjust an off grid appraisal? All of this is preliminary with a lot of moving parts so if possible I am just looking for general guidance and your thoughts.
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
Are there any limits on acreage for a Reverse Mortgage? Borrower has 166 acres. It was used as a buffalo ranch but all of the buffalo have been sold.
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
I have a reverse mortgage prospect with a 40-acre property that is free & clear. Son is actively farming the property but lives next door on an adjoining property. Can we do a reverse mortgage on this type property?
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.
Can a reverse mortgage be placed on a property that’s dubbed “agricultural”? Client lives in Fort Collins, Colorado, on 20 acres and 13 of those acres are used to grow hay.
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.
I have a lady interested in a reverse mortgage. She stated that she is quite behind on her property taxes. She hasn’t paid in a few years due to falling behind and never having been able to catch up. She believes she’s roughly $10-12K behind. HOI is up to date. I don’t want to waste her time or mine if we are not able to help her due to FA guidelines, is this something we can do with a LESA? Can we pay her delinquent property taxes at closing? Her home is free and clear of a mortgage.
If the borrower has had good credit overall and does not show a lack of desire to pay her bills then I think this one would qualify with a LESA. She can and will have to pay all delinquent taxes at close.
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).
Under the FHA rules, a new construction condo project that has at least 30% primary occupancy is eligible for FHA Financing. I would hope this includes reverses. Since it is under construction, I would imagine we would have to have a CO first. Is that right? This would not let us do reverse mortgage under the new project requirement.
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: CONDO APPROVALS
PROPERTY: FLOOD CERTIFICATE
Question on flood zone/elevation cert. The flood cert shows the property is in a flood zone, but the elevation cert shows it’s above the flood zone. This is a $750,000 property and we’re wondering if it will be acceptable or not?
They need to order an LOMR (Letter of Map Revision). They can go to FEMA’s website to fill out the request and pay the fee.
PROPERTY: MULTIPLE HOMES ON ONE LOT
Can I do a reverse for someone who has a separate rental property on their lot? It is income producing so I am thinking no, but I thought I would ask.
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
Attached is the title report for a reverse mortgage in process. There are two parcel numbers associated with the property, one of which has only outbuildings from what I am told. Can you confirm that this would not be an issue to encumber both parcels with a reverse mortgage?
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
Borrower owns land F&C (or not…) wants to build home using a builder. Some questions are: How does the fact that the land is owned F&C impact the purchase/loan amount? Are there any unique issues that would need to be addressed prior to the loan being accepted? Would Cert of Occupancy need to be completed prior to loan closing as on typical construction loan? What if they have a lien on the land?
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
We have an appraisal on a HECM purchase (new construction) that is going to come in very low due to excessive upgrades. What are our options to get the loan closed?
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
Is there 12 month seasoning to get “full appraised value” after you purchase a home? If refinancing in under 12 months, we used to use the purchase price to base PLF.
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.
The seller can pay customary owner’s title policy and ½ of the escrow and that’s it. Still no other seller contributions.
We have a borrower who doesn’t file tax returns. I ordered his transcripts from the IRS and they were rejected per the below message: The IRS rejected this order citing Code 10 – File marked as having possible ID theft or fraudulent tax returns filed under tax payer’s SSN. The tax payer should contact the IRS directly at 800-829-0922. The borrower has called the number provided and can’t get through to a live person. Also, he has tried to request online with no luck. Please advise how we can proceed.
Just have borrower write a letter that they do not file/have not filed last two years and that is fine. I have seen that rejection code from IRS, not sure why they word it that way when they do not file.
UP FRONT MIP
If the homeowner paid off the loan within 3 years (not something I would advise) is any part of the upfront MIP refundable?
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.