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HUD revises HECM Financial Assessment Guidelines

Dear Licensed Partner,

On July 13th 2016, The U.S. Department of Housing and Urban Development (HUD) released a Mortgagee letter 2016-10, which announced further changes related to the HECM Financial Assessment and Property Charge Set Asides guidance. These changes will be effective for case numbers assigned on or after October 03rd 2016. Below are some of the important excerpts from the Mortgagee letter.

  • The loan must be suspended until borrower resolves delinquent federal tax debt with IRS; delinquent federal non-tax debt with creditor agency.
  • If hazard insurance and flood insurance (if applicable) were not in place for principal residence for the previous 12 months, these will have to be prepaid for a period of 12 months at or before closing.
  • Documentation for continuance of federal pension income is not required.
  • If the residual income is between 80 to 99% of the required residual income, following compensating factors can be used:
    • Assets equal to Life Expectancy Property Charges
    • HECM Sufficient to Pay Off Debts
    • Access to Other Credit
    • Property Charge Payment History
  • Student loan must be included in expenses, regardless of payment types or status of payments. The payment used in expenses has to be
    • the greater of:
      • 1 percent of the outstanding balance on the loan; or
      • The monthly payment reported on the Borrower's credit report; or
    • Actual documented payment provided the payment will fully amortize the loan over its term
  • Following compensating factors can be used in combination to reduce the residual income shortfall:
    • Eligible Non-Borrowing Spouse Income
    • Overtime, Seasonal, Part-time or Bonus Income
    • Expected SSI or Pension Income
    • Imputed Income from HECM
  • The compensating factor – Access to Other Credit can be used only if
    • Credit line is opened in borrower’s name for at least 6 months and
    • These accounts have been paid off in full monthly for at least the past six months

    Note: Credit lines, for which the borrower is an authorized user, cannot be considered.

  • In the calculation of Life Expectancy Set Aside and Imputed income, the life expectancy of the youngest borrower will be rounded up to the nearest whole year if next birthday is less than 183 days from the estimated closing date.
  • Where the amount of property charges to be paid through the Fully Funded LESA is such that the borrower will still fall significantly short of the residual income standard, the HECM could not be approved.

If you have any questions, please contact your Client Relations Manager at (855) OK-SUNWEST or (855) 657-8693.

Sincerely,

Sun West Mortgage Company, Inc.
18000 Studebaker Road, Suite 200
Cerritos, CA 90703
Phone: (800) 453-7884
SW-1: Our No Overlays Program

 

Equal Housing Opportunity This information is provided to licensed brokers/lenders only and may not be copied or distributed to customers or potential customers. All loans are subject to approval. Certain restrictions may apply. Listed pricing is a morning indication only. Program rates, prices, guidelines, fees, costs, terms and conditions are subject to change without notice.