According to FHA Mortgagee Letter 2006-25 all borrowers are required to receive counseling from a HUD approved third party counseling agency. Processing begins only after the borrower submits to you a signed and dated counseling certificate. Preliminary title commitment and an AVM may be ordered prior to counseling, as outlined in
Mortgagee Letter ML #2006-25. If the borrower does not proceed with closing on the reverse mortgage, the borrower may not be charged for the above pre-ordered services.
Mortgagee Letter 2008-28 says that Lenders can no longer pay HUD-approved counseling agencies, directly or indirectly, for counseling services through either a lump-sum payment or on a case-by-case basis. An example of prohibited indirect funding is Lenders funneling payment for HECM counseling through a nonprofit foundation, association or any other entity or organization that is a branch of, affiliated with or associated with a lending institution.
It is our policy to require non-borrowing spouses to attend counseling as well as sign the Non-Borrowing Spouse/Resident disclosure for all products. If this presents a hardship to the borrower, please submit a letter of explanation with the file.
At the present time we urge all counseling to be face to face, but it is only mandated in North Carolina. Sources of counseling are:
AARP - 1-800-209-8085
NFCC - 1-866-698-6322
MMI - 1-877-908-2227
and the websites listed below:
http://www.hud.gov/offices/hsg/sfh/hcc/hccprof14.cfm
http://www.hecmresources.org/states/reque_state_index.cfm
If the property is in Massachusetts you must use one of the counselors on the list found on this website: http://www.mass.gov/Eelders/docs/list_rev_mort_couns.pdf
If the property is in NC the counseling must be face to face.
Sunday, July 12, 2009
Principal Limit
The Principal Limit is calculated on the age of the youngest borrower, the appraised value of the subject property or the FHA limit (whichever is less) and the current expected interest rate. The current limit for FHA HECM loans is $417,00 nation wide.
For the adjustable rate, the principal limit can be locked in at time of application. The principal limit lock is valid for 120 days from the date the FHA Case Number is assigned. It allows the borrower to receive the principal limit at the time of application or the principal limit at closing, whichever is greater. Fixed rate loans are not locked in until closing.
For the adjustable rate, the principal limit can be locked in at time of application. The principal limit lock is valid for 120 days from the date the FHA Case Number is assigned. It allows the borrower to receive the principal limit at the time of application or the principal limit at closing, whichever is greater. Fixed rate loans are not locked in until closing.
Eligible Vesting
All properties must be vested in one of the following ways:
Fee Simple
Life Estate
Leasehold
Trust
Land Trust
Fee Simple
Life Estate
Leasehold
Trust
Land Trust
Non-Eligible Properties
The following property types are not eligible for a reverse mortgage:
Investment properties
Vacation homes
Second homes
Properties with illegal accessories units or mixed use properties where more than 25% is used for non-residential purposes
Manufactured homes which are legally recorded as a condominium (this will change in 2009) or if property is not taxed as real estate
Two parcels on one deed (if home sits on both)
Investment properties
Vacation homes
Second homes
Properties with illegal accessories units or mixed use properties where more than 25% is used for non-residential purposes
Manufactured homes which are legally recorded as a condominium (this will change in 2009) or if property is not taxed as real estate
Two parcels on one deed (if home sits on both)
Eligible Property
The following property types are eligible for a HECM reverse mortgage:
Single family
2-4 units, as long as one unit is the borrower’s primary residence
Condominiums
Planned Unit Developments (PUD)
Manufactured Homes
Single family
2-4 units, as long as one unit is the borrower’s primary residence
Condominiums
Planned Unit Developments (PUD)
Manufactured Homes
Residence Eligibility
The subject property must be the borrower’s principal residence. A person can have only one principal residence at any one time. The property cannot be considered the principal residence if the borrower does not occupied the property for a period exceeding 180 days. In the case of co-borrowers, at least one borrower must occupy and use the property as their primary residence after the closing of the reverse mortgage and until the loan is due and payable. If a borrower fails to maintain the subject property as their principal residence it is considered a maturity event under the terms of the security instrument and may result in a demand for repayment of the reverse mortgage loan.
Borrower Eligibility
All borrowers on loan must be 62 years of age or older. If a deeded owner of the property is not eligible due to age, they would need to be removed from the title. This is a very serious decision and it may involve serious consequences for the younger borrower. It should first be discussed with their legal or financial advisor. Removing them from the deed could result in them having to vacate the home when the older borrower dies or has to vacate the premises, perhaps to go to a nursing home. Never advise someone to do this as it is unfair to the removed occupant unless they fully understand the consequences.
Just as it is true for all FHA mortgages, U.S citizenship is not required for eligibility. For those borrowers with lawful permanent resident alien status, the mortgage is available under the same terms and conditions as U.S. citizens. Evidence of permanent residency in the form of documentation issued by the Bureau of Citizenship and Immigration Services must be provided.
Reverse mortgages may also be available to non-permanent resident aliens provided they have a valid social security number. Non-U.S. citizens with no lawful residency status in the U.S. are not eligible. The rules are the same as for forward FHA mortgages.
Just as it is true for all FHA mortgages, U.S citizenship is not required for eligibility. For those borrowers with lawful permanent resident alien status, the mortgage is available under the same terms and conditions as U.S. citizens. Evidence of permanent residency in the form of documentation issued by the Bureau of Citizenship and Immigration Services must be provided.
Reverse mortgages may also be available to non-permanent resident aliens provided they have a valid social security number. Non-U.S. citizens with no lawful residency status in the U.S. are not eligible. The rules are the same as for forward FHA mortgages.
FROM AARP’S HOMEMADE MONEY BOOK*
Definition
A "reverse" mortgage is a loan against your home that you do not have to pay back for as long as you live there. With a reverse mortgage, you can turn the value of your home into cash without having to move or to repay the loan each month. The cash you get from a reverse mortgage can be paid to you in several ways:
all at once, in a single lump sum of cash;
as a regular monthly cash advance;
as a "credit line" account that lets you decide when and how much of your available cash is paid to you; or
as a combination of these payment methods.
No matter how this loan is paid out to you, you typically don't have to pay anything back until you die, sell your home, or permanently move out of your home. To be eligible for most reverse mortgages, you must own your home and be 62 years of age or older.
How Do Reverse Mortgages Compare With Other Home Loans?
To qualify for most loans, the lender checks your income to see how much you can afford to pay back each month. But with a reverse mortgage, you don't have to make monthly repayments. So you don't need a minimum amount of income to qualify for a reverse mortgage. You could have no income and still be able to get a reverse mortgage.
With most home loans, you could lose your home if you don't make your monthly payments. But with a reverse mortgage, there aren't any monthly repayments to make. So you can't lose your home by not making them. Most reverse mortgages require no repayment for as long as you — or any co-owner(s) — live in the home. So they differ from other home loans in these important ways:
you don't need an income to qualify for a reverse mortgage; and
you don't have to make monthly repayments on a reverse mortgage.
Forward vs. Reverse Mortgages
You can see how a reverse mortgage works by comparing it to a "forward" mortgage — the kind you use to buy a home. Both types of mortgages create debt against your home. And both affect how much equity or ownership value you have in your home. But they do so in opposite ways.
"Debt" is the amount of money you owe a lender. It includes cash advances made to you or for your benefit, plus interest. "Home equity" means the value of your home (what it would sell for) minus any debt against it. For example, if your home is worth $150,000 and you still owe $30,000 on your mortgage; your home equity is $120,000.
Falling Debt, Rising Equity
When you purchased your home, you probably made a small down payment and borrowed the rest of the money you needed to buy it. Then you paid back your traditional "forward" mortgage loan every month over many years. During that time:
your debt decreased; and
your home equity increased.
As you made each repayment, the amount you owed (your debt or "loan balance") grew smaller. But your ownership value (your "equity") grew larger. If you eventually made a final mortgage payment, you then owed nothing, and your home equity equaled the value of your home. In short, your forward mortgage was a "falling debt, rising equity" type of deal.
Rising Debt, Falling Equity
Reverse mortgages have a different purpose than forward mortgages do. With a forward mortgage, you use your income to repay debt, and this builds up equity in your home. But with a reverse mortgage, you are taking the equity out in cash. So with a reverse mortgage:
your debt increases; and
your home equity decreases.
It's just the opposite, or reverse, of a forward mortgage. With a reverse mortgage, the lender sends you cash, and you make no repayments. So the amount you owe (your debt) gets larger as you get more and more cash and more interest is added to your loan balance. As your debt grows, your equity shrinks, unless your home's value is growing at a high rate.
When a reverse mortgage becomes due and payable, you may owe a lot of money and your equity may be very small. If you have the loan for a long time, or if your home's value decreases, there may not be any equity left at the end of the loan.
In short, a reverse mortgage is a "rising debt, falling equity" type of deal. But that is exactly what informed reverse mortgage borrowers want: to "spend down" their home equity while they live in their homes, without having to make monthly loan repayments.
Exception
Reverse mortgages don't always have rising debt and falling equity. If a home's value grows rapidly, your equity could increase over time. Or, if you only get one loan advance and no interest is charged on it, your debt would never change. So your equity would grow as your home's value increases. But most home values don't grow at consistently high rates, and interest is charged on most mortgages. So the majority of reverse mortgages end up being "rising debt, falling equity" loans.
*What is a Reverse Mortgage copied from AARP’s Homemade Money ©2005
A "reverse" mortgage is a loan against your home that you do not have to pay back for as long as you live there. With a reverse mortgage, you can turn the value of your home into cash without having to move or to repay the loan each month. The cash you get from a reverse mortgage can be paid to you in several ways:
all at once, in a single lump sum of cash;
as a regular monthly cash advance;
as a "credit line" account that lets you decide when and how much of your available cash is paid to you; or
as a combination of these payment methods.
No matter how this loan is paid out to you, you typically don't have to pay anything back until you die, sell your home, or permanently move out of your home. To be eligible for most reverse mortgages, you must own your home and be 62 years of age or older.
How Do Reverse Mortgages Compare With Other Home Loans?
To qualify for most loans, the lender checks your income to see how much you can afford to pay back each month. But with a reverse mortgage, you don't have to make monthly repayments. So you don't need a minimum amount of income to qualify for a reverse mortgage. You could have no income and still be able to get a reverse mortgage.
With most home loans, you could lose your home if you don't make your monthly payments. But with a reverse mortgage, there aren't any monthly repayments to make. So you can't lose your home by not making them. Most reverse mortgages require no repayment for as long as you — or any co-owner(s) — live in the home. So they differ from other home loans in these important ways:
you don't need an income to qualify for a reverse mortgage; and
you don't have to make monthly repayments on a reverse mortgage.
Forward vs. Reverse Mortgages
You can see how a reverse mortgage works by comparing it to a "forward" mortgage — the kind you use to buy a home. Both types of mortgages create debt against your home. And both affect how much equity or ownership value you have in your home. But they do so in opposite ways.
"Debt" is the amount of money you owe a lender. It includes cash advances made to you or for your benefit, plus interest. "Home equity" means the value of your home (what it would sell for) minus any debt against it. For example, if your home is worth $150,000 and you still owe $30,000 on your mortgage; your home equity is $120,000.
Falling Debt, Rising Equity
When you purchased your home, you probably made a small down payment and borrowed the rest of the money you needed to buy it. Then you paid back your traditional "forward" mortgage loan every month over many years. During that time:
your debt decreased; and
your home equity increased.
As you made each repayment, the amount you owed (your debt or "loan balance") grew smaller. But your ownership value (your "equity") grew larger. If you eventually made a final mortgage payment, you then owed nothing, and your home equity equaled the value of your home. In short, your forward mortgage was a "falling debt, rising equity" type of deal.
Rising Debt, Falling Equity
Reverse mortgages have a different purpose than forward mortgages do. With a forward mortgage, you use your income to repay debt, and this builds up equity in your home. But with a reverse mortgage, you are taking the equity out in cash. So with a reverse mortgage:
your debt increases; and
your home equity decreases.
It's just the opposite, or reverse, of a forward mortgage. With a reverse mortgage, the lender sends you cash, and you make no repayments. So the amount you owe (your debt) gets larger as you get more and more cash and more interest is added to your loan balance. As your debt grows, your equity shrinks, unless your home's value is growing at a high rate.
When a reverse mortgage becomes due and payable, you may owe a lot of money and your equity may be very small. If you have the loan for a long time, or if your home's value decreases, there may not be any equity left at the end of the loan.
In short, a reverse mortgage is a "rising debt, falling equity" type of deal. But that is exactly what informed reverse mortgage borrowers want: to "spend down" their home equity while they live in their homes, without having to make monthly loan repayments.
Exception
Reverse mortgages don't always have rising debt and falling equity. If a home's value grows rapidly, your equity could increase over time. Or, if you only get one loan advance and no interest is charged on it, your debt would never change. So your equity would grow as your home's value increases. But most home values don't grow at consistently high rates, and interest is charged on most mortgages. So the majority of reverse mortgages end up being "rising debt, falling equity" loans.
*What is a Reverse Mortgage copied from AARP’s Homemade Money ©2005
The Origination Package
The Originator’s Checklist was created to collect information from potential borrowers on the initial call. The objective of this first call is to educate the borrowers so they can decide if they want to go forward. Go over the loan requirements; ask about value of home and whether or not there are existing liens on the property.
Encourage the customer to go the counselor so they can learn about the program to make an informed decision. Be sure to tell them the meeting with the counseling agency is private, and is designed as a fact-finding tour for consumers. They are under no obligation to continue with the loan.
Ask three questions:
1. Did you get the information I sent to you?
2. Do you have any questions?
3. Have you scheduled the required third party meeting with a counselor?
The Application package should explain the steps involved in the loan process, the third party education session and should include where they need to call to arrange counseling. You can obtain a list of the counseling agencies for HECM on the HUD website and you may utilize the AARP counseling services. If you choose to give counselor information to borrower, you must supply contact information for at least 10 counselors; 5 of whom can be national but the remaining 5 must be in the state where property is located and one must be in driving distance.
Requesting Reverse Mortgage Counseling HUD website:
http://www.hecmresources.org/requests.cfm
The Originator’s Checklist was created to collect information from potential borrowers on the initial call. The objective of this first call is to educate the borrowers so they can decide if they want to go forward. Go over the loan requirements; ask about value of home and whether or not there are existing liens on the property.
Encourage the customer to go the counselor so they can learn about the program to make an informed decision. Be sure to tell them the meeting with the counseling agency is private, and is designed as a fact-finding tour for consumers. They are under no obligation to continue with the loan.
Ask three questions:
1. Did you get the information I sent to you?
2. Do you have any questions?
3. Have you scheduled the required third party meeting with a counselor?
The Application package should explain the steps involved in the loan process, the third party education session and should include where they need to call to arrange counseling. You can obtain a list of the counseling agencies for HECM on the HUD website and you may utilize the AARP counseling services. If you choose to give counselor information to borrower, you must supply contact information for at least 10 counselors; 5 of whom can be national but the remaining 5 must be in the state where property is located and one must be in driving distance.
Requesting Reverse Mortgage Counseling HUD website:
http://www.hecmresources.org/requests.cfm
Flow of a Reverse Mortgage
Talk to RMverse Mortgage Client
Required third party non-profit counseling session.
Application is taken
Prelim Title work gets ordered.
Case Number is ordered
Appraisal is done.
Check all items on check off list.
Once information gathered send to underwriting.
Sign final loan documents.
Mandatory three day rescission period.
Funds are disbursed.
Collateral package if needed
Sent to servicing company
Repair account is opened
Talk to RMverse Mortgage Client
Required third party non-profit counseling session.
Application is taken
Prelim Title work gets ordered.
Case Number is ordered
Appraisal is done.
Check all items on check off list.
Once information gathered send to underwriting.
Sign final loan documents.
Mandatory three day rescission period.
Funds are disbursed.
Collateral package if needed
Sent to servicing company
Repair account is opened
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