Month: May 1975

PROPERTY

What property types are eligible?

Existing one-to-four unit properties where construction has been completed and the property is habitable as evidenced by local jurisdiction issuance of certificate of occupancy or its equivalent.

Can a HECM for purchase be used to satisfy outstanding payment obligations associated with a land contract?

Yes, if the property will be used as collateral for the HECM and the mortgage will be held in fee simple, or on a leasehold under a lease for not less than 99 years which is renewable, or under a lease having the remaining period of not less than 50 years beyond the date of the 100th birthday of the youngest mortgagor.

Can a lender take application on a property that is under construction and not habitable?

No. The lender may only take application once the Certificate of Occupancy or its equivalent has been issued.

What property types are ineligible?

• Cooperative units
• Newly constructed residences where a Certificate of Occupancy or its equivalent has not been issued by the appropriate local authority
• Boarding houses
• Bed and breakfast establishments
• Existing manufactured homes built before June 15, 1976; and
• Existing manufactured homes built after June 15, 1976 that fail to conform to the Manufactured Home Construction Safety Standards, as evidenced by affixed certification labels (e.g., data plate and HUD certification label) and/or lack a permanent foundation as required in HUD’s Permanent Foundations for Manufactured Housing Guide or homes that are installed or were occupied previously at another site or location.

Are set asides for property charges allowed (i.e., ground rent, tax, insurance, Homeowner Association fees, etc.)?

Yes. Mortgagors will continue to have the option of electing to have the lender withhold funds from their monthly payments or by charging such funds to the line of credit. <top>

Are set asides for repairs allowed?

To be eligible for federal insurance, the property must meet FHA minimum property requirements. All repairs to correct major property deficiencies that threaten the health and safety of the homeowner and/or jeopardize the soundness and security of the property must be completed by the seller prior to closing. Appraisers must complete the appraisal report as “Subject To” the completion of these repairs.

Major Property Deficiency Examples:

• No running water
• Leaking roof
• No primary heating source
• Inadequate electrical system (including lighting)
• Inoperable doors and windows (inhibited ingress and egress)
• State or local code violations

Is the Amendatory Clause required?

Yes. An appraisal is required for all HECM transactions, including purchase transactions. The execution of the Amendatory Clause does not negate federal and state mandates on providing a copy of the appraisal to the consumer.

Are there special procedures for foreclosure homes that will serve as collateral for a purchase transaction?

No. FHA has sufficient valuation guidelines related to comparable sales and declining markets to address the resale of foreclosed properties. HUD has imposed a standard of accountability to which lenders, sponsor lenders, and loan correspondents will be held is the same as the standard used to impose civil money penalties for program violations, and that standard is one of knowing (actual knowledge) or had reason to know.

If the lender suspects the senior has become involved in a property flipping scam, who should be contacted?

If a lender suspects a senior has become a victim to a property flipping scam, contact the Processing and Underwriting Division of the local HOC. Complaints may also be reported to HUD’s Inspector General Hotline at: HUD Office of Inspector General Hotline, GFI, 451 7th Street, SW Washington, DC 20410 Phone: 1 (800) 347-3735 or TDD: (202) 708-2451.

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What is HECM for Purchase?

HECM for Purchase allows seniors, age 62 or older, to purchase a new principal residence using loan proceeds from the reverse mortgage.

What is the purpose of the program?

The program was designed to allow seniors to purchase a new principal residence and obtain a reverse mortgage within a single transaction. The program was also designed to enable senior homeowners to relocate to other geographical areas to be closer to family members or downsize to homes that meet their physical needs, i.e., handrails, one level properties, ramps, wider doorways, etc.

PROCESSING

What if the HUD-1 Lines 303 and 603 do not match the figures from the Loan Amortization Schedule?

The HECM for Purchase closing will use many of the acceptable practices used for insuring forward mortgages. Because the HUD-1 Settlement Statement is the final statement, it will reflect final adjustments (e.g., adjustments for fuel, electricity, etc.) not captured on the Reverse Mortgage Loan Amortization Schedule.

Is the fixed interest rate eligible in a HECM for purchase loan?

Yes. 

Should the lender obtain a credit report for non-borrowing spouses?

Yes. Although one spouse will become the HECM mortgagor, the lender must obtain the credit report for a review of financial obligations, monetary judgments and liens that could jeopardize the HECM lien status/clear and marketable title. 

What documentation should be used to document the 60-day physical requirement to occupy the property after closing?

The HECM security instrument requires the HECM mortgagor to establish a legitimate principal residence in the home. Lenders are encouraged to ensure the HECM mortgagor lives in the home prior to submitting the case binder for endorsement. Lenders may, but are not required to, obtain a letter from the HECM mortgagor stating he/she lives in the home. 

Are lenders required to submit form HUD 92541, Building Certification of Plans, Specifications & Site and 10-year warranties in the case binder?

No. Newly constructed properties must be 100% complete at the time of inspection and initial application. 

Under what conditions may a senior cancel the purchase transaction?

The senior may decide to cancel the purchase transaction at any time prior to the date of closing. If the senior decides to cancel the transaction, he/she must notify all parties in writing. Where earnest money has been provided, the senior should review the sales contract to determine if the earnest money is refundable. The Federal Reserve Board of Governors should be contacted for right of rescission and Truth in Lending Act guidance. 

Are the mortgage proceeds paid to the seller through escrow?

The title company (settlement agent) is responsible for disbursing funds in accordance with state law.

Is this a HECM for purchase or a traditional HECM?

A senior purchases a principal residence using 100% seller financing, signs a HECM loan application the next day or shortly thereafter and meets all eligibility criteria for obtaining a HECM. Does the Federal Housing Administration (FHA) consider this transaction to be a traditional HECM or a HECM for purchase transaction?

This scenario describes a traditional HECM. Consistent with existing policy guidance, the HECM loan proceeds will satisfy a recorded lien that was created from the seller financing. Lenders may request a copy of the executed HUD-1 and warranty deed, or its equivalent, to ensure transfer of title to the prospective HECM mortgagor. 

Once a principal residence has been purchased using HECM loan proceeds, can the property serve as collateral for another secured loan?

Yes, only after the mortgage insurance certificate has been issued. Lenders are responsible for ensuring additional secured liens are subordinate to the HECM first and second liens. Such financing may not occur concurrently with the HECM closing. 

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What is a reverse mortgage?

A reverse mortgage is a special type of home loan that lets you convert a portion of the equity in your home into cash. The equity that you built up over years of making mortgage payments can be paid to you.  However, unlike a traditional home equity loan or second mortgage, HECM borrowers do not have to repay the HECM loan until the borrowers no longer use the home as their principal residence or fail to meet the obligations of the mortgage.  You can also use a HECM to purchase a primary residence if you are able to use cash on hand to pay the difference between the HECM proceeds and the sales price plus closing costs for the property you are purchasing. Click HERE for more information on a HECM for Purchase.

Can I qualify for FHA’s HECM reverse mortgage?

To be eligible for a FHA HECM, the FHA requires that you be a homeowner 62 years of age or older, own your home outright, or have a low mortgage balance that can be paid off at closing with proceeds from the reverse loan, and you must live in the home.

Can I apply for a HECM even if I did not buy my present house with FHA mortgage insurance?

Yes.  You may apply for a HECM regardless of whether or not you purchased your home with an FHA-insured mortgage.

What types of homes are eligible?

To be eligible for the FHA HECM, your home must be a single family home or a 2-4 unit home with one unit occupied by the borrower. HUD-approved condominiums and manufactured homes that meet FHA requirements are also eligible.

What are the differences between a reverse mortgage and a home equity loan?

With a second mortgage, or a home equity line of credit, borrowers must have adequate   income to qualify for the loan, and they make monthly payments on the principal and interest.  A reverse mortgage is different, because it pays you – there are no monthly principal and interest payments.  With a reverse mortgage, you are required to pay real estate taxes, utilities, and hazard and flood insurance premiums.

Will we have an estate that we can leave to heirs?

When the home is sold or no longer used as a primary residence, the cash, interest, and other HECM finance charges must be repaid.  All proceeds beyond the amount owed belong to your spouse or estate.  This means any remaining equity can be transferred to heirs.  No debt is passed along to the estate or heirs.

How much money can I get from my home?

The amount you may borrower will depend on:

You can borrow more with the HECM Standard option. In addition, the more valuable your home is, the older you are, and the lower the interest rate, the more you can borrow.  If there is more than one borrower, the age of the youngest borrower is used to determine the amount you can borrow.  For an estimate of HECM cash benefits, select the online calculator from the HECM Home Page. Many online reverse mortgage calculators can provide you with an estimate of the amount of funds you can borrow.

Should I use an estate planning service to find a reverse mortgage lender?

FHA does NOT recommend using any service that charges a fee for referring a borrower to an FHA-approved lender.  You can locate a FHA-approved lender by searching online at www.hud.gov or by contacting a HECM counselor for a listing.

How do I receive my payments?

You can select from five payment plans:

What if I change my mind and no longer want the loan after I go to closing?  How do I do this?

By law, you have three calendar days to change your mind and cancel the loan.  This is called a three day right of rescission.  The process of canceling the loan should be explained at loan closing.  Be sure to ask the lender for instructions on this process.  Mortgage lenders differ in the process of canceling a loan.  You should ask for the names of the appropriate people, phone numbers, fax numbers, addresses, or written instructions on whatever process the company has in place.  In most cases, the right of rescission will not be applicable to HECM for purchase transactions.

Have You Bounced Yourself Out of a Checking Account? 

How you can re-establish or maintain an account

Have you tried to open a checking account and been turned down? Or, did your bank close your account? If so, you’re not alone — and it’s important to understand why this can happen, and what you can do about it.

Consumers who frequently write bad checks or otherwise overdraw their account may find that their bank or credit union decides to close their account. In fact, between 2000 and 2005, financial institutions closed roughly 30 million checking accounts for these reasons, according to a 2008 Harvard Business School report.

You also may have trouble opening a new checking account elsewhere if your financial institution sent your name to a consumer reporting service that keeps track of negative information relating to how consumers use their deposit accounts, such as writing bad checks to merchants or having a checking account closed because of mismanagement. (The consumer reporting service receiving the information most likely will be ChexSystems, the dominant company in this field.)

Under the Fair Credit Reporting Act, a bounced check or other covered problem reported to a consumer reporting agency may stay on your record for as many as seven years. “Being on a check reporting system’s list means you may have a hard time opening a checking account for quite a while,” said Luke Brown, an Associate Director in the FDIC’s Depositor and Consumer Protection Division.

What steps can you take to fix an existing problem with your record? First, you can order a free copy of a report on you, if there is one. (To request a copy of a ChexSystems report and learn more from that company, go to www.consumerdebit.com or call 1-800-428-9623.)

“You should review the report and dispute any incorrect information,” advised Luke W. Reynolds, the FDIC’s Chief of Program Development and Outreach. He also said to beware of companies that promise they will clean up your record for a fee. “There’s no quick fix for negative information that’s legitimately reported to a consumer reporting service,” he added.

Above all, don’t give up on obtaining a traditional checking account. “There are banks and credit unions that are willing to open federally insured accounts to people who had trouble managing their accounts in the past,” Reynolds said. “These are often called ‘second chance’ checking accounts, but be sure to carefully evaluate the terms of any account, including any fees you’ll have to pay and any conditions you may have to meet.”

Reynolds also suggests going back to the institution that closed your account to see if it will give you the opportunity to open another account. And if you do obtain a new deposit account, whether at that institution or another one, work hard to use that account properly.

What can consumers do to avoid getting into this predicament? Use your checking account responsibly. That includes closely monitoring what money goes into and out of your account, including deposits, fees, debit card transactions, automatic payments and other withdrawals.

For tips on how to manage a checking account, go to www.fdic.gov and search for articles in FDIC Consumer News and other material, including the FDIC brochure Your Guide to Preventing and Managing Overdraft Fees.

www.fdic.gov

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…that sometimes the extended warranty is not worth it?

The Manufacturer’s Warranty Is Often Sufficient

Just about all products on the market today come with a standard manufacturer’s warranty, which typically covers your purchase for one year. The majority of minor malfunctions occur within this first year, while major problems are more apt to occur much later, beyond the reach of an extended warranty’s term.

Consumer Products Depreciate in Value

Suppose you purchase a Blu-ray DVD player for $100, and acquire a two-year extended warranty for an additional $30. Chances are, within the next couple of years, the price of Blu-ray players will drop significantly. In other words, you’re probably better off keeping the $30 in your pocket and just getting a new one should something happen to yours.

Warranties Are Not Cost-Effective

Another reason not to take the bait on extended warranties is that they are simply too expensive. For instance, I recently purchased a 2009 Toyota Corolla. The salesperson was pushing hard for the extended car warranty, which would offer bumper-to-bumper coverage for the first 12 months, at a cost of $1,800. I seriously doubt that I am going to need $1,800 worth of repairs in the next year for a car that is barely two years old.

Furthermore, as previously stated, the extended warranty often overlaps the manufacturer’s protection. You may purchase a two-year extended warranty, but with the manufacturer’s protection covering the first year, you end up paying a two-year rate for only one additional year of coverage.

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