Additional Clarification on HECM Financial Assessment
(Correspondent & Wholesale Channels)
Dear Licensed Partner,
The U.S. Department of Housing and Urban Development (HUD) has conducted a webinar on September 23, 2015 which provided further clarification and important reminders pertaining to the HECM Financial Assessment and Property Charge Set Asides.
The HUD requirements mentioned below must be satisfied for all HECM loans submitted:
- The lender must document 24 months of property charge payment history for all properties owned by the borrower, including the previous principal residence if the borrower has changed the principal residence in the past 24 months
- Only debts attached to the subject property can be paid off at closing with HECM proceeds
- Non-real estate debts (revolving, installment, etc.) not attached to the subject property cannot be paid off at closing with HECM proceeds
- Unused HECM proceeds that are not used for paying off mandatory obligations can be considered as dissipated asset and can be used in the calculation of the residual income
- In cases of a residual income shortfall or negative residual income, a HECM can be approved only if one of the following conditions is sufficient to completely mitigate the residual income shortfall:
- The borrower must have satisfactory property charge payments and debt payment history AND meet one of the following requirements to completely mitigate the residual income shortfall:
- Fully funded Life Expectancy Set Aside (LESA)*, OR
- Partially funded LESA, OR
- Compensating Factors, OR
- A combination of LESA and Compensating Factors
HUD states that if the residual income shortfall cannot be completely mitigated by one of the above, then the HECM cannot be approved because it cannot be considered as a sustainable solution to the borrower's financial circumstance.
*LESA is the amount withheld from the proceeds of the HECM for the projected payment of property charges during the life of the borrower.
Sun West's HECM and Underwriting Guidelines are now updated to include clarifications and additional information provided by the HUD webinar with examples of residual income analysis.
Guidelines for the Correspondent channel can be accessed here.
Guidelines for Wholesale and Hybrid Correspondent channels can be accessed here.
If you have any questions, please contact your Client Relations Manager at (855) OK-SUNWEST or (855) 657-8693.
|Sun West Mortgage Company, Inc.
18000 Studebaker Road, Suite 200
Cerritos, CA 90703
Phone: (800) 453-7884
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.