Falling Back Into Line...
Monday, 31 August 2009 16:00
...time to brush off the beach sand, tighten the cap on the cocoa butter bottle and move those sandals to the side in the closet – pull on your street shoes, it’s time to get back to work!
While you were on summer hiatus, the reverse mortgage space didn’t stand still. Time to focus back on the business and follow-up on a few things:
• The HECM purchase market continues to grow as realtors become more familiar with the product features and benefits, and originators become more comfortable working with seniors and the market in addressing borrower needs and concerns.
• Time to hit the knowledge trail for answers (answers in next month’s column) to several HECM purchase questions which still remain a little “fuzzy” in terms of fact or fiction:
â—¦ What about gifts?
â—¦ What about buying a condo in Arizona and living there 6 months or more, but also owning another home somewhere else that won’t be sold or rented?
â—¦ What about a non-borrowing spouse who has a HECM loan on another property?
• After October 1st, the next time you hear “spot” you can be sure it won’t be associated with a condo! Spot condo underwriting will be a thing of the past. While there still remains some additional guidance and procedure forthcoming, the best clarity recommendation is to review the Mortgagee Letter 09-19 in detail for upcoming condo changes. A complete copy is available at: http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/.
• Based upon growth, several readers have asked how to become a HECM Direct Endorsement Underwriter. The DE Underwriter is granted authority to issue approvals and endorse HECM loans when their individual authorization is attached to an entity that has been approved for Direct Endorsement activities. Once an entity is approved as a DE mortgagee, the addition of more HECM underwriters is at the company discretion. As indicated, underwriting (direct endorsement authority) is granted to supervised (generally institutions regulated by a banking regulator and the FDIC) and non-supervised (generally a mortgage banker or subsidiary of a regulated institution) Lending Institutions (you can not be a sponsored Loan Correspondent) that have attained approval from HUD/FHA to provide an underwriting decision. However, since HECMs require specialized experience, the normal DE status does not cover authority for these institutions to underwrite and insure HECM loans automatically. Additional test cases and separate approval from FHA is required. It is highly recommended to gain experience with another lender that is currently providing the underwriting decision under a principal-authorized agent agreement relationship before attempting to gain HECM DE status. Based upon your AAFB (area approved for business) you should check with your HUD HOC (home ownership center) for specific details as to the requirements and procedure for attaining and implementing FHA HECM direct endorsement authority.
• Haven’t seen too much relief on the declining markets front. I continue to hear and see issues related to availability of recent comparables not associated with “bank” sales stated by appraisers in the form of “no better, no closer, no recent, no current, no supporting….” If I can make a suggestion, work with your appraiser from a “thesaurus and dictionary perspective”. For $350, a few extra words couldn’t possibly require additional man-hours. The word “no” is the operativeword. It is completely acceptable when followed by words that explain “no” and provide a basis of support to the underwriter in determining the final value. These days, major danger to final value determination by the underwriter is present when a declining market is indicated by the appraiser and not supported by 2 of the comparables being less than 90 days old.
• I need a loan for 798 Million! – The security would be real estate, owner occupied as a primary residence by borrowers over 62 years of age. Seriously, be aware that resolution of the FHA subsidy issue may come in the form of lowered principal limits.
• Disclosure Checklist Warning. For the many new participants in the reverse mortgage space, now is the time to revisit the consumer disclosures you are currently using. Recent state additions, modifications and changes to required disclosures are constantly being promulgated. Read your broker/correspondent agreements with your investors. Many of these contracts require you to hold your investor harmless for failure to properly disclose.
• Hazard insurance issues continue to surprise originators. Be aware that many of the insurers have changed their guidelines, especially in continuing volatile weather areas of the country. Most obvious is the lack of guaranteed replacement coverage availability, resulting in a per square foot value assessed based on structural age. This change gives rise to the real possibility that your appraised value would exceed the insurable value – an issue which must be resolved before the loan is scheduled to close and final figures calculated. A good safeguard to this situation is to review the hazard policy at the time of application, make sure there will be at least 90 days coverage past the anticipated closing date, and if the insured value is less than the sum of the anticipated appraised value less the land value – have the borrower be prepared to discuss increasing the coverage with their agent once the appraised value is determined versus once the loan is approved subject to coverage changes and the investor being listed as the loss payee.
• Speaking of manufactured homes – don’t forget the importance of addressing those out buildings and added or attached structures. While many homes have been upgraded by the addition of mudrooms, sunrooms, porches, balconies, and other additional square footage, it is important to note that these “add-ons” must be properly permitted, inspected and meet local codes as well as be included in the inspection report comments and property review.
• For what can a driver’s license be used? If it is current/valid and in force, and represents the state the borrower currently claims in connection with their primary residence, the “ID” can be used as a Patriot verification document, it can be used as a picture ID, it can be used to verify date of birth (remember if it has NOT expired). It’s only purpose if it is expired is another form of picture ID.
• Funds to close – as the declining value and rate combination continues to impact principal limits, more borrowers are having to come to the closing table with “funds to close”. Make sure you discuss the possibility with your borrower at the time of application if the preliminary numbers look “tight”, and begin the process of bank verification or alternative funds verification at that time, versus waiting for an appraisal to be completed with little or no chance of cost recovery if the borrower is unable to address the funds shortfall.
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