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On Behalf of HUD & The FHA Welcome to our session on the Home Equity Conversion Mortgage

On Behalf of HUD & The FHA Welcome to our session on the Home Equity Conversion Mortgage

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On Behalf of HUD & The FHA Welcome to our session on the Home Equity Conversion Mortgage

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  1. On Behalf of HUD & The FHA Welcome to our session on the Home Equity Conversion Mortgage

    1
  2. Housekeeping Phone lines ~ Q&A ~ Polling Activities Phone lines – muted Questions – chat panel Interactivity – voting tools and polling questions 2
  3. Your Instructors Rosemary Bender Judy Nash-Ellis 3
  4. FHA Subject Matter Expert Welcome to our guest from the FHA who will be responding to participant questions and offering additional guidance during today’s webinar. 4
  5. Home Equity Conversion Mortgage

    (HECM) 5
  6. Identify the purpose of reverse mortgages and distinguish between traditional and reverse mortgages. Interpret essential reverse mortgage guidelines and identify potential borrowers. Determine if an applicant meets eligibility requirements List co-borrower/co-signer and non-borrowing spouse requirements List HECM product options. Summarize closing and insuring requirements associated with reverse mortgage lending. http://www.hud.gov/offices/hsg/sfh/hecm/hecm--df.cfm Course Objectives 6
  7. Together we will: Explore the history of the Home Equity Conversion Mortgage (HECM). History Fact or Fiction – common misconceptions Discuss program and borrower requirements. Program characteristics Age requirements Counseling requirements Credit and collateral guidelines Identify submission and insuring expectations. Course Overview 7
  8. Polling Questions How long have you been in the mortgage industry? How long have you been working with reverse mortgage loans? 8
  9. Introducing the “Reverse”The mortgage that pays 9
  10. A loan on the borrower’s primary residence that uses the home’s equity to secure the loan. Think the opposite of a traditional “forward” mortgage. A reverse mortgage loan has rising debt and declining equity. What is a Reverse Mortgage? Loan? 10 Source: http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/hecm/hecmabou
  11. FHA’s reverse mortgage product offering. Home Equity Conversion Mortgage As the title implies the purpose is to convert home equity into monetary disbursements. According to the FHA: HECM Program insures what we commonly refer to as ‘reverse’ mortgages. Designed to enable elderly homeowners to convert the equity in their home into a monthly stream of income/lines of credit. What is a HECM Loan?? 11 Source: http://www.hud.gov/offices/hsg/sfh/hecm/hecm--df.cfm
  12. Program Comparison 12
  13. 1961 the first reverse mortgage funded. 1970-1980 reverse mortgage product gained steam. 1984, a U.S. Senate Special Committee on Aging conducted its first hearings on reverse mortgages. Resulting in The Depository Institutions Act, which cleared a regulatory path for reverse mortgages. The first federal statutory recognition of reverse mortgages provided the reverse mortgage industry the legitimacy of acknowledgement by the Federal Government. 1987 Congress passed the FHA reverse mortgage insurance proposal. 1988 the FHA reverse mortgage insurance legislation is signed by President Reagan. History of Reverse Mortgages Source: Actuarial Analysis of FHA HECM Loans (FY 2011) available at: Http://portal.hud.gov/huddoc/ActrRev_2011_HECM.pdf 13
  14. HUD released proposed regulations for the FHA reverse mortgage insurance program and took a direct role in the distribution of reverse mortgage promotion into the industry. HUD selected 50 lenders, by lottery, to make the first FHA-insured reverse mortgages. HUD developed software that determined reverse mortgage loan advances and made it available to the public. HUD release of the "Home Equity Conversion Mortgage" (HECM) program handbook (# 4235.1). The first FHA-insured HECM closed. History of Reverse Mortgages1989 – A Milestone Year 14
  15. 1996 Fannie Mae joined the development of the reverse mortgage when they announced their “Home keeper.” Program discontinued 12/31/2008 in light of HERA and the revisions to the HECM product offering associated with the regulation. 1997 reverse mortgages had become such a presence in the industry the National Reverse Mortgage Lenders Association (NRMLA) was organized and thus giving a national voice to all lenders and investors working with reverse mortgages. 2000 the first national reverse mortgage counseling exam was developed and offered to those involved in reverse mortgage lending. History of Reverse Mortgages1990s and Beyond 15
  16. Questions 16
  17. Borrowers can access funds whenever they choose. Loan funds may be disbursed in a number of different ways. Limited credit and income-qualifying. Income, assets, monthly living expenses. Credit history may be verified. Timely payment of property taxes, hazard and flood insurance premiums may be verified. HECM Benefits Sources: http://assets.aarp.org/www.aarp.org_/articles/money/financialpdfs/hmm hires_nocrops.pdf (http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/hecm/hecmhome 17
  18. Limited asset requirements. No monthly payment required. Loan proceeds are tax free. Check with a tax advisor. Non-recourse loan. HECM Benefits 18
  19. May not be appropriate for the short term. Not intended for periods of one to five years. May not be appropriate for low-dollar financial needs. Not available for borrowers under age 62. HECM Challenges 19
  20. A lack of public awareness. Diminishing estate as loan balance grows over time. Escrow accounts not available. Maturing events resulting in the loan coming due. Access to equity may lead to financial issues. Seniors can be targets for financial scams. HECM Challenges 20
  21. Ethics, Regulations, and Misconceptions Early Issues – No regulations or codes of conduct. Lack of disclosures to educate and protect the borrower. Predatory lending. Selling the product as a sale lease back with no payments needed as the “lender” would use the accumulated equity to pay interest. Lenders going on title as joint owner and sell the property out from under the borrower. Originators enticing the borrower to buy high fee securities with the proceeds often when they were the securities dealer. 21 Sources: Congressional Research Service Report for Congress as of 02/22/2012 http://aging.senate.gov/crs/aging14.pdf - FHA Modernization Act from HERA, along w/ML 2008-33
  22. FHA Modernization Act of 2008 Limits Home Equity Conversion Mortgages (HECM) OR reverse mortgages to 150% of the GSE limit, currently $417,000. Prohibits HECMs from being associated with any other “financial or insurance activity” unless they prove to HUD that they maintain appropriate protections to ensure originators do not have incentive to sell other products. Prohibits lender or other party from conditioning sale of HECM product on purchase of other financial/insurance products except hazard, peril, or title insurance. Mortgagee Letter 10-39 provides for updated certification language for lenders and borrowers. FHA received authority to increase the penalty. Ethics and Regulations 22
  23. Ethics, Regulations, and Misconceptions Regulatory Evolution – Ethical issues cause concerns for the mortgage industry. Majority offering reverse mortgages are industry professionals who conduct themselves ethically and in compliance with the law. Reverse mortgages are governed by federal and state regulations. Counseling Roster TILA/RESPA See ML 2010-39 23
  24. The Reverse Mortgage Loan Market Over 40 million homeowners are over the age of 65. More than 50% of homeowners over age 65 own their home free and clear. Over 80% of older households own their homes free and clear. Equity worth approximately $4 trillion. FHA endorses over 70,000 HECM loans each year. 2009 resulted in record high endorsements. 114,639 endorsements issued. 24 Source: Administration on Aging (http://www.aoa.gov/aoaroot/aging_statistics/future_growth/future_growth.aspx)
  25. Home Equity Conversion Mortgage (HECM) Represents 90% of all reverse mortgage loans. Often provide the maximum loan amount for the average homeowner. Principal Limit for HECM. Represents the present value of loan proceeds available to the borrower. Only type of reverse mortgage loan insured by the federal government. Growing line of credit. 25 Source: http://www.federalreserve.gov/pubs/feds/2009/200942/index.html#footnote_24 http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/hecm/hecmhome
  26. Home Equity Conversion Mortgage (HECM) 6% Rate x $80,000 Balance = $4,800 26
  27. All title-holders and parties connected to the property or transaction must receive proper counseling. Counseling protects the borrower and the lender. Counseling should address: Program eligibility requirements. Financial implications. Alternatives. Provisions for the mortgage becoming due and payable. Required Borrower Counseling 27 Source: http://portal.hud.gov/hudportal/documents/huddoc?id=DOC_13006.pdf
  28. Questions 28
  29. Reverse Mortgage Loan against primary residence. Opposite of traditional ‘forward’ mortgage. Rising debt & declining equity. Benefits Various disbursement options. Less stringent credit/income requirements. Non-recourse loans. Proceeds are tax free. Challenges History of questionable lending practices. Not available for borrowers under the age of 62. Maturity Events: Due and payable if borrower vacates for more than 12 months. Failure to pay property charges (property taxes, etc.). Ethics and Regulations FHA Modernization Act of 2008 prohibits conditioning approval on the purchase of supplemental products. National HECM Counselor Roster established. National Mortgage Limit established. Borrower and non-borrower counseling required. Let’s Review 29
  30. Sound Advice on HECMBorrower Counseling 30
  31. Counseling Counseling provided to all interested persons. Counselors must discuss and review: Financial implications of a HECM. A disclosure that a HECM may impact the borrower’s taxes, estate, and eligibility for government assistance (state/federal). Other methods to convert home equity available. Options outside of HECM available to borrower. Any additional information required by HUD. The pros and cons of each program will be reviewed looking to best meet the needs of the borrower. The counselor will ensure the borrower is educated and well-versed on the program features, risks and benefits. Sources: http://portal.hud.gov/hudportal/documents/huddoc?id=DOC_13006.pdf 4235.1 REV-1: Home Equity Conversion Mortgages (HECM) CHAPTER 2: BORROWER COUNSELING 31
  32. Counseling Counseling protects the borrower and the lender by allowing the homeowner to make an independent, informed decision of whether this product meet their needs. Counseling and the application process may be conducted face-to-face or via the phone. ML 2007 – 08 allows prospective HECM borrowers the option to meet face-to-face with the lender and/or HECM counselor or to participate in loan origination and counseling activities by telephone. Despite this flexibility, you are strongly encouraged to interview and complete the application with the borrower(s) face-to-face. 32 Source: ML 2007-08
  33. Counseling Once the loan application and initial disclosures are signed, the borrower must complete the third party counseling. When preparing the borrower for the counseling session, originators should furnish several program options for review. Counseling is most often free as it is subsidized by HUD. Housing Counseling agencies can charge the cost of counseling to a client whether or not it receives a grant from HUD. Under no circumstances can any charge assessed be a financial hardship upon the borrower (see HUD ML 2008-12). 33 Source: ML 2008-12
  34. Counseling HUD HECM Counseling locator: https://entp.hud.gov/idapp/html/hecm_agency_look.cfm HUD Counselor location services are available at: 800-569-4287 There are currently 9 HECM intermediaries who receive HECM funding from HUD. The intermediaries vary from year to year. 34 Source: www.fha.gov
  35. Counseling Borrowers must understand they have to pay their taxes, insurance, applicable HOA/condo fees, etc. It’s a very big issue now, because many HECM borrowers have drawn all their funds at closing and have insufficient monthly income to set aside money to pay those recurring charges.  They need to plan for those expenses. If they fail to plan for these expense, the servicer will force place insurance if they don’t get their own, and the rate could be higher than that the borrower can obtain themselves.  Then, the borrower has to repay the servicer for the cost of the insurance, or any other property charges advanced on their behalf.  If they don’t repay it, the loan becomes due and payable. They can lose their home to foreclosure. 35
  36. Counseling Regardless of whether a counseling session is completed face-to-face or via telephone, an ORIGINAL HECM counseling certificate must be received and signed by both the counselor and the prospective borrower and included in the loan file for underwriting. 36 Source: www.fha.gov
  37. Case Study Scenario: George and Laura are retirees in their 80s. Laura does not want to listen to the reverse mortgage information and relies on her husband to make all the decisions. Does Laura need to be involved? Can she waive out of these meetings? 37
  38. Case Study Scenario – Answer Both borrowers must be involved. It is possible that Laura not be on the loan documents and only needs to participate in the counseling. Absent that choice, all borrowers must be involved fully throughout the entire process. 38
  39. Questions 39
  40. The HECM Structure Underwriting and Processing Criteria 40
  41. Basic Guidelines 41 Sources: 4235.1 & http://www.hud.gov/offices/hsg/sfh/hecm/hecm--df.cfm
  42. Basic Guidelines The Borrower All persons on title must be at least 62 years of age. Co-Borrowers/Co-Signers Individuals that are not listed on title/deed and do not have ownership in the subject property may not sign the mortgage or loan documents. NOTE: Some exceptions may exist, such as persons holding power of attorney rights. 42 Source: http://www.hud.gov/offices/hsg/sfh/hecm/hecm--df.cfm
  43. Basic Guidelines The Property Primary residences 1-4 unit properties Manufactured homes Condominiums NOTE:With condominiums check your investor guidelines and/or HUD for specific areas/project acceptance. 43
  44. Basic Guidelines The Loan Amount FHA HECM transaction - the limit is determined by the FHA maximum allowable for the property and location. Let’s review how to access this key information: https://entp.hud.gov/idapp/html/hicostlook.cfm 44
  45. Basic Guidelines – Loan Limits 45 Source: https://entp.hud.gov/idapp/html/hicostlook.cfm
  46. Basic Guidelines – Loan Limits 46
  47. Basic Guidelines Uses include: Purchase Refinance Any payoff greater than the maximum loan amount or principal limit must be paid by the borrower at closing. Subordinating liens typically need to be satisfied at or before closing. 47
  48. Basic Guidelines Fees include: Origination fee Appraisal Inspection fees Title policy and settlement agent Mortgage insurance Underwriting fee Monthly servicing fee - lenders administration of the loan All of these costs can be financed as part of the mortgage and do not need to be paid by the borrower at closing. 48
  49. Basic Guidelines Payment options include… Line of credit Term Tenure Modified tenure Modified term 49
  50. Payment Options Line of Credit - a pre-established amount of credit, the borrower can draw against as needed - some lines will increase each year by as much as 5% annually. Tenure - the principal available is paid out monthly for the life of the loan or until a maturing event occurs. Term - the available principle is paid out monthly in equal amounts for a set number of months. 50
  51. Payment Options Modified Tenure - this combines a line of credit with tenure allowing the borrower to set aside some of the proceeds as a line of credit with the remainder disbursed as monthly income for the life of the loan. Modified Term - this combines a line of credit with tenure allowing the borrower to set aside some of the proceeds as a line of credit with the remainder disbursed as monthly income for a designated amount of time. 51
  52. Payment Option Changes What if a borrower wants to change their payment plan option??? Borrowers are welcome to change payment plan options. $20 fee associated with plan change. 52 Source: HB 7610.1
  53. HECM Payment Options 53
  54. Basic Guidelines – Loan Payoff Required when… Borrower(s) fail to occupy the property for 12 consecutive months due to physical or mental illness and the property is not the principal residence of at least one borrower. Borrower(s) permanently move out of property. Last surviving borrower dies. Borrower(s) convey all of title to the property and no borrower retains title. Property is sold. Borrower(s) fails to pay property taxes or other property related expenses. Borrower(s) fails to keep the home insured. Borrower(s) fails to maintain and/or repair the home. 54
  55. Basic Guidelines – Default Other maturing events which require loan payoff include: Perpetration of fraud or misrepresentation. Property appropriated by the government under eminent domain. Depends on full amount of property conveyed or just a portion with HUD approval Condemnation of the property. If the required repairs were not made Changing the use of the residence or home's zoning classification when there are no HECM borrowers residing in the property. Adding a new owner to title. 55
  56. Basic Guidelines Right of Rescission After signing the documents at closing the borrower will have three days to reconsider their decision (Refinance). 56
  57. Case Study Scenario: Fred and Wilma are HECM mortgagors who live in a small ranch home located in Missouri. Both are 71 years old and like to travel and use their vacation home in Florida. Unfortunately they were in an automobile accident on their way home to St. Louis from Florida. It seems they will both need some time recuperating from extensive surgery and will be in the hospital or extended living facility for several months. They should both fully recover in 4-6 months. Considering they had been in Florida for 5 months and will not occupy the primary for another 4+ months (a total of 9+), is this a concern for the lender? Yes or No? 57
  58. Case Study Scenario – Answer Yes The borrower’s health is of concern and they should recover and return home soon. This is great news. Whenever there is a vacancy for an extended time, it is wise to let the lender know the intentions/plans to return to the primary residence. No There would likely be no concern as there is no intention of vacating the primary for 12 months. The accident while very unfortunate is not a ‘maturing event.’ 58
  59. Questions 59
  60. Borrower Eligibility 60
  61. Eligible Borrowers A reverse mortgage borrower must… Be age 62 or older—all borrowers. Claim subject property as his or her primary residenceif on title. Not have delinquent or defaulted federal debt that cannot be satisfied by closing. 61
  62. Eligible Borrowers A reverse mortgage borrower does not need… To be retired. To have financial hardship. To have any physical hardship or limitations. To have income limitations to qualify. To have his or her mortgage paid off. A modest home. To be a first time home buyer/owner. 62
  63. Borrower Criteria Age Borrower(s) must be at least 62 years old. This means all borrowers/co-borrowers and all persons on title must be age 62 or older. Changing titled owners after the loan closing is discouraged. Adding after the fact means title. holder is NOT a HECM mortgagor HECM loans are not assumable. 63
  64. Borrower Criteria Income Source of income is stated but not verified. Since the borrower is not required to make any payments while he or she occupies the property, there are no income ratios or verification of income. Subject to change – look for future updates. The source of income can be from any typical avenue: pension, interest income, employment, 401K, IRAs, etc. Remember—the amount of income is not verified. 64
  65. Borrower Criteria Assets For a reverse mortgage, assets are typically neither required nor verified - sometimes these are requested to be “stated.” Assets are needed if the payoff of an existing lien is greater than the principal loan funds available from the new loan; these assets must be sourced and seasoned in accordance with FHA/lender policy. 65
  66. Borrower Criteria Assets May be required for a purchase transaction. When a down payment is needed a standard VOD or 90 days bank statements will usually suffice. Check with your lender for their specific requirements. 66
  67. Borrower Criteria Debts There are no debt-to-income (DTI) ratios or tests; therefore, the amount of debt a borrower has is not considered. Look at monthly financial obligations and how they may be handled. Sometimes just consolidating one credit card with another or paying it off with idle assets resolves the problem. Take the time to explore any financial squeeze the borrower may have—many issues can be easily resolved; the reverse mortgage should be utilized for bigger, more long-term needs. 67
  68. Borrower Criteria Credit All government debt (IRS, FHA, VA, SBA, USDA, student loans, etc.) must be in good standing. Defaulted and/or delinquent obligations need to be satisfied at or before closing (check with your lender on specific situations). Judgments and property liens also need to be satisfied. In rare cases, prior liens or judgments may be subordinated to the new reverse mortgage. 68
  69. Borrower Criteria Personal judgments or liens must be resolved prior to closing. This applies to any court-ordered obligation that is in default or delinquent. Consumer obligations, including mortgage payment history may be considered. This means any late payment or derogatory history for mortgages, credit cards, autos, utilities, etc. Foreclosures and bankruptcies may not exclude borrower from HECM. Subject to scrutiny – overall financial assessment. As always, check with your lender on specific situations. 69
  70. Co-Borrowers and Co-Signers All borrowers must be age 62+. Co-borrowers must meet all borrower requirements. Co-signers are not common to this program. 70
  71. Non-Borrowing Spouse All on title must be at least 62 years old. Regardless of age or relationship, only borrowers may remain on title. Everyone on title must claim subject property as his or her primary residence. 71
  72. Co-Borrowers, Co-Signers andNon-Borrowing Spouses Changing titled property owners after the loan closes does not mean the title holder has rights to the property. Not HECM mortgagor. HECM becomes due and payable upon death of last surviving HECM borrower. If it is determined that a spouse or co-borrower is desired at a future time, a refinance is encouraged. 72
  73. Additional Requirements Trusts Inter Vivos Trusts are usually permitted provided all direct beneficiaries acknowledge the indebtedness of the property. It is encouraged that the beneficiaries participate in the consumer counseling. A full copy of the trust will be required by the underwriter for evaluation. 73 Sources: 4235.1 REV-1: Home Equity Conversion Mortgages (HECM) CHAPTER 4: MORTGAGE CREDIT ANALYSIS (11/18/94) 4-5: HOME EQUITY CONVERSION MORTGAGES FOR PROPERTY HELD IN TRUST
  74. Additional Requirements Trusts Often the primary beneficiary will need to acknowledge the mortgage and/or be involved in counseling. Irrevocable trusts are generally not allowed. 74
  75. Additional Requirements Power of Attorney Many borrowers have given their POA to a family member, trusted friend or professional. Counseling will be required as they hold the POA and need to understand the transaction fully. Check with your lender and closing agent about documentation or approval requirements for a power of attorney. Sources: ML 2004-25 4235.1 REV-1: Home Equity Conversion Mortgages (HECM) CHAPTER 4: MORTGAGE CREDIT ANALYSIS (11/18/94) 4-6: POWER OF ATTORNEY AND CONSERVATORSHIP GUIDELINES 75
  76. Polling Question Larry, age 84, is going into the hospital for a short stay and wants to add his wife, Mary, to the title. Is this permitted if she is also 84 years old? Yes or No? 76
  77. Polling Question No Adding Mary is not permitted after closing. Changing title owners for any reason may trigger a maturing event and cause the mortgage to be due. 77
  78. Questions 78
  79. Property Eligibility 79
  80. Eligible Properties 1-4 Unit Properties Manufactured Homes (built after June 15, 1976) Single-Family Residences Attached or detached single family residences are accepted. Planned Unit Developments (PUD) An association questionnaire may be required. Condo Projects/Approved Projects Must be approved through HUD. An association questionnaire may also be required. 80
  81. Eligible Properties Homes on leased land have stringent requirements. The lease must be for not less than 99 years if renewable or have a remaining term of at least 50 years beyond the 100th birthday of the youngest borrower. Property size requirements may vary; however, 400 square feet is usually the minimum. Sources: 4235.1 REV-1: Home Equity Conversion Mortgages (HECM) CHAPTER 3: PROPERTY ANALYSIS (11/18/94) 3-4: ELIGIBLE PROPERTIES http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/hecm/faqs_hecm 81
  82. Eligible Properties Property condition The property must be in good condition with no, or very little, deferred maintenance required. A standard full appraisal will be required. FHA appraisal for HECM loans. 82
  83. Repairs Minor Repairs Minor repairs may be considered by a lender. Repairs completed after closing must be documented on a Repair Rider and require lender certification using the Compliance Inspection Report (HUD form 92051). Required repairs must meet the minimum acceptance level of quality per Handbook 4905.1. If the estimated cost of repair is less than 15% of the Maximum Claim Amount (MCA), the repairs can be completed after closing; otherwise, the repairs must be completed prior to closing: Except for HECM for purchase loans which do not have Repair Riders. Normal wear and tear (cosmetic) may affect value, but need not be corrected for a reverse mortgage. 83
  84. Repairs Major Repairs Greater than 30% of the principal limit will generally be deemed unacceptable and the property will be rejected. Standard FHA appraisal required. Safety issues will need to be addressed prior to closing. 84
  85. Appraisal Considerations Common Appraisal Issues Incomplete appraisal forms. Comparables used don’t match subject. Comparables not close to subject. Outdated comps. Adjustments outside guidelines. (15% for net; 25% for gross) Upward adjustments not explained or supported. Unique or specialized properties. 85
  86. Occupancy Requirements Purchases for PRIMARY residences only is permitted. Refinance transactions may require evidence of residency prior to application, check with your lender for their specific needs. Many residents may live in a vacation home for part of the year, check residency/occupancy carefully. The borrower(s) must claim the subject as his or her primary residence, which is defined as the dwelling where the borrower shall maintain his or her permanent place of abode, and typically spends the majority of the calendar year. Greater than 6 months plus 1 day each year. 86 Source: http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/hecm/hecmabou
  87. Occupancy Requirements Borrowers may reside outside the subject on a temporary basis for physical rehab or medical reasons. If they move out permanently or are out of the property for 12 consecutive months, the loan is due and payable. This could include an extended care facility or assisted living home. It is permissible for one of the borrowers to occupy a residence other than the subject for a period of time for reasons such as recuperating after surgery or extended care. 87
  88. Occupancy Requirements As Per HUD sec 206.39: The property must be the principal residence of each mortgagor at closing. For purposes of this section, the property will be considered to be the principal residence of any mortgagor who is temporarily or permanently in a health care institution as long as the property is the principal residence of at least one other mortgagor who is not in a health care institution. As long as one (1) of the borrowers occupies the property as his or her primary residence for the specified time, there is usually no concern. 88
  89. Occupancy Requirements As Per HUD sec 206.27, a maturing event may occur if: For a period of longer than 12 consecutive months, a mortgagor fails to occupy the property because of physical or mental illness and the property is not the principal residence of at least one other mortgagor. The remaining borrower or co-borrower may remain in the property without triggering any maturing event as long as they are not in a healthcare facility for 12 consecutive months. 89
  90. Homes Under Construction Homes to be built or that are currently under construction are not accepted. The property must be completed and ready to move in. An occupancy certificate must be available and the lender is required to accept the property ‘as-is.’ 90 Source: http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/hecm/faqs_hecm
  91. Polling Question Jerry and Millie have a vacation condo in Florida and a primary residence in Minnesota. Because of Millie’s health, they stay in Florida for 8 months each year. They are both 80 years old and their home in Minnesota, worth $300,000, is free & clear. For income tax purposes, they have Florida drivers’ licenses and file their taxes in Florida. Can we do a reverse mortgage on the Minnesota home? Yes or No? 91
  92. Polling Question No All legal documentation shows residency in Florida. HECM requires the property be a primary residence or Jerry & Millie live in Minnesota - for 6 months + 1 day. Look at the Florida condo as the subject. 92
  93. Polling Question If the scenario applies to their Florida condo is a HECM product an option? Yes or No? 93
  94. Polling Question Yes By using the Florida property as their primary residence, the borrowers could qualify. 94
  95. Questions 95
  96. Let’s Review – Guidelines Loan Type Purchase Refinance Cash-out Refinance Acceptable Fees Loan Payoff Loan Default Right of Rescission Conventional vs. Reverse The best interest of the borrower. Borrower Must be minimum 62 years of age. Must complete 3rd party loan counseling. Property Primary residence. 1- to 4-unit. Single-family, manufactured home, condominium. Loan Limits Based on FHA loan limit. 96
  97. The HECM Process Putting it all together 97
  98. HECM Mortgage Amount How much money is available to the borrower? Varies based upon several factors. Mortgage Amount Factors: Age of youngest borrower. Current interest rate. Property value Purchase price – purchase transactions. Lesser of appraised value or HECM Maximum Claim Amount which is limited to $625,500 (applies to purchased and refinanced transactions). AND Initial Mortgage Insurance Premium HECM Standard HECM Saver Sources: http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/hecm/rmtopten; ML 2013-01 98
  99. Upfront Mortgage Insurance Premiums Mortgage Insurance Premiums Fixed Rate – Use HECM Saver 0.01% (HECM Saver) Adjustable Rate – Can use HECM Standard or HECM Saver 2% (HECM Standard) 0.01% (HECM Saver) Mortgage Insurance through the FHA guarantees that the borrower will receive the expected loan advances (payments made to the borrower). Sources: ML 2013-01 http://portal.hud.gov/hudportal/documents/huddoc?id=13-01ml.pdf 99
  100. HECM Standard vs. SaverAfter ML 2013-01 HECM Standard Higher principal limit. Standard has a 2% upfront MIP and is only available with an adjustable rate. HECM Saver Lower principal limit. Saver has a 0.01% upfront MIP and is available for fixed and adjustable interest rates. 100
  101. Other Mortgage Amount Factors Do these factors increase the mortgage amount? The more the home is worth the more they can borrow. The older the borrower is the more they can borrow. The lower the interest rate the more they can borrow. 101
  102. Costs Associated with HECM Is it more expensive to do a HECM? It depends – while the there are fees associated with HECM the borrower can finance their fees. Note that financing fees reduces the net loan amount available to the borrower after closing. HECM Fees and Charges Mortgage Insurance Premiums Up-front & Annual 3rd Party Charges Origination Fee Interest Servicing Fees 102 Source: http://portal.hud.gov/hudportal/HUD?src=%2Fprogram_offices%2Fhousing%2Fsfh%2Fhecm%2Fhecmabou
  103. Costs Associated with HECM – MIP Mortgage Insurance Premiums Up-front MIP – charged at closing. 0.01% (For Fixed Rates, HECM Saver is used for both Standard & Saver.) 2% (For ARMS, HECM Standard can be used.) Annual MIP – charged over the life of the loan. Equals 1.25% of the mortgage balance over the entire loan term. Mortgage Insurance through the FHA guarantees the borrower they will receive the expected loan advances (payments made to the borrower). 103
  104. Costs Associated with HECM 3rd Party Charges Closing costs from 3rd parties Appraisal Title work Surveys Inspections Etc. 104
  105. Costs Associated with HECM Origination Fees compensate the lender for the processing of the HECM. Greater of $2,500 OR 2% of the first $200,000 of the maximum claim amount + 1% of any portion of the maximum claim amount that exceeds $200,000. Max claim amount up to $200,000. $2,500 or 2% of max claim amt. Max claim amount exceeds $200,000. 2% of 1st $200K + 1% of remaining amount. HECM Origination fee capped at $6,000. Lender may accept less. 105
  106. Costs Associated with HECM Interest Fixed or Adjustable rates available. Adjustable options include: Rate may adjust monthly or annually. Monthly adjustments 10% industry imposed cap. Annual adjustments have 2% annual and 5% lifetime adjustment caps. 106 Source: http://portal.hud.gov/hudportal/HUD?src=%2Fprogram_offices%2Fhousing%2Fsfh%2Fhecm%2Fhecmabou
  107. Costs Associated with HECM Servicing Fees Servicing provided throughout the life of the loan. Includes statements, disbursing loan proceeds, and validating loan requirements. Taxes & Insurance Adjustable loan servicing fee schedule: Max $30/mo. for annual rate adjustments. Max $35/mo. for monthly rate adjustments. Lender sets aside servicing fee at origination. Deducts fee from available funds. Servicing fee added to loan balance. 107 Source: http://portal.hud.gov/hudportal/HUD?src=%2Fprogram_offices%2Fhousing%2Fsfh%2Fhecm%2Fhecmabou
  108. HECM Submission – Case Numbers Application includes: General information Worksheet information Borrower information Mortgage information Requests for FHA insurance for HECM programs handled via FHA Connection. Using “HECM Insurance Application.” Used to process all HECM case types. Traditional, purchase, refinance. Sources: FHA Connection, ML 2010-34 108
  109. Let’s Review – HECM Process Interest Rate Adjustments Annual adjustment Monthly adjustment HECM Submission FHA Connection Case Numbers Mortgage Amount Based on loan factors Value of subject property Age of youngest borrower Interest rate MIP HECM MIP Options Consolidation of HECM Standard & HECM Saver HECM Costs MIP 3rd Party Charges Origination Fee Interest Rate (fixed or adjustable) Servicing Fee 109
  110. What did we cover? Identify the purpose of reverse mortgages and distinguish between traditional and reverse mortgages. Interpret essential reverse mortgage guidelines and identify potential borrowers. Determine if an applicant meets eligibility requirements. List co-borrower/co-signer and non-borrowing spouse requirements. List HECM product options. Summarize closing and insuring requirements associated with reverse mortgage lending. Completing the CourseObjective Summary 110
  111. Questions 111
  112. Reminders: Course Evaluation Recorded version of webinar will be available on the HUD website Webinar FAQs will be available on HUD website FHA Knowledge Database: http://portal.hud.gov/hudportal/HUD?src=/FHAFAQ CALLFHA (800) CALLFHA – (800) 225-5342 or email us at answers@hud.gov. Next Steps & Resources 112
  113. We look forward to your participation in other training events. Other FHA Programs include: Overview of HUD/FHA Programs FHA Energy Efficient Mortgage (EEM) FHA Condominium Approval Process Credit Underwriting – Loan Calculations Credit Underwriting – Borrower Analysis Fundamentals of DE Credit Review & TOTAL Scorecard FHA 203(k) Rehabilitation Mortgage Insurance Program Home Mortgage Insurance for Disaster Victims 203(h) Fundamentals of Insurance Endorsement. FHA Appraisal Requirements – Property Types How to Review an FHA Appraisals How to Manually Underwrite an FHA Mortgage Thanks for attending this course! 113
  114. Welcome to our session on the Home Equity Conversion MortgageThank You!

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