With April marking the 1st Anniversary of The Reverse Review and paper being the traditional 1st Anniversary gift, how fitting that we start off the month of April with killing more trees for paper to add to our HECM files! Time to lay in a supply of more toner!


 


Mortgagee Letters 2009 -09, 10 and 11 did a last minute rush to the finish line in March 2009.





ML-2009-09





Adoption of Market Conditions Addendum (Fannie Mae Form 1004MC/Freddie Mac Form 71) and Appraisal Reporting Requirements for Properties located in Declining Markets



Currently, all Federal Housing Administration (FHA) Roster Appraisers are required to report on housing trends in the Neighborhood section of the applicable property specific appraisal reporting form. The Uniform Standards of Professional Appraisal Practice (USPAP) mandate that an appraiser maintain documentation necessary to support all analyses, opinions and conclusions for each appraisal assignment in a work file.  In order to ensure greater transparency and accuracy of appraisals performed for FHA-insured financing, FHA will adopt the Market Conditions Addendum


 


(Fannie Mae Form 1004MC/ Freddie Mac Form 71, released November 2008).  For all appraisals of properties that are to be security for FHA-insured mortgages and that are performed on or after April 1, 2009, the appraisal must include the Market Conditions Addendum.


 


To read this mortgagee letter, the others listed below and any attachments in their entirety, please visit: http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/ view the 2009 letters and click on the letter of your choice. Mortgagee Letters from previous years can be found on the same page.





Underwriting Impact Comment: The operative words are “on or after April 1, 2009”. Your Underwriter suggests you send a copy of this mortgage letter to your appraisal vendors as it will impact all HECM appraisals.





ML 2009-10 





HUD’s Updated Policies on HECM Counseling, and Several New Requirements:  



The letter includes a reiteration that lenders are strictly prohibited from assisting a senior in scheduling counseling; borrowers are not to be pressured in any way and must contact a counseling agency at their own pace. 





Lenders must now provide a list of no fewer that 10 counseling agencies to every client, including 5 local agencies that are within the senior’s local area and/or state, with at least one agency within reasonable driving distance in order to provide face-to-face counseling if the senior so elects. 


 


In addition to the 5 local agencies, the other 5 agencies include National Foundation for Credit Counseling, Money Management International, CCCS of Greater Atlanta and the National Council on Aging and the AARP; in ML 2009-10, HUD provides toll-free numbers for these 5 agencies. 


 


HECM counselors must review a senior’s unique financial situation during the counseling session; the counselor must document the senior’s budget based on financial information provided by the senior (such as income, assets, debts, monthly expenses); this budget analysis, required by section 255 of the National Housing Act, mandates that the counselor evaluate and discuss with the senior any appropriate alternatives to a HECM loan. 



HUD revised the HECM Counseling Certificate to provide a space to record the method of payment for the counseling session, either “Upfront Fee for Counseling Session” or “Financed Fee for Counseling Session”, as well as a box to check if the fee has been waived. 





Underwriting Impact Comment: Pull your counseling information list NOW and revise it according to the new letter.
 

 

A good borrower safeguard would be to conduct a company review of the changes to HECM Counseling.

 

Additionally, include a company position statement as to counseling requirements and guidelines for loan originators and HECM borrowers.

 


ML 2009-11 





Remember HECM for Purchase Mortgagee Letter, ML 2008-33, some of the provisions of ML 2008-33 are included in the new Mortgagee Letter 2009-11: 



With regard to HECM for purchase transactions, the maximum claim amount will be the lesser of: 1) the appraised value of the home; 2) sale price of the home; or 3) the HECM “loan limit”. 


 


HECM mortgagors may have only one principal residence at any one time; current HECM mortgagors that plan to sell their existing residence and use the HECM for purchase program to obtain a new principal residence must payoff the existing FHA-insured mortgage before the HECM for Purchase mortgage can be insured. 


 


HUD also provides guidance to prevent the practice known as “buy and bail” where the homebuyer purchases a more affordable home with the intention to cease making payments on the previous mortgage. 



The monetary investment required may be met through the use of funding sources approved under HUD Handbook 4155.1, REV-5, section 2-10, except that (i) sweat equity, (ii) trade equity, (iii) rent credit or cash from the following parties may not be used: (a) a seller or any other person or entity that financially benefits from the transaction, or (b) any third party or entity that is reimbursed, directly or indirectly, by the seller or any other person or entity that financially benefits from the transaction.


 


If a property has major property deficiencies (as outlined in ML 2009-11), all repairs of such deficiencies must be completed by the seller prior to closing. 



Lenders must examine HUD’s Limited Denial of Participation List (LDP) and the General Services Administration’s (GSA) Excluded Parties List System to determine whether the seller, real estate agent, builder, or other parties involved in the transaction, appears on either list. The reverse mortgage will not be eligible for mortgage insurance if the name of any party to the transaction appears on either list.


 


Borrowers cannot obtain “gap” financing if there are is a lack of funds available to purchase the new home outright. This restriction includes subordinate liens, personal loans, cash withdrawals from credit cards, seller financing and any other lending commitment that cannot be satisfied at closing.


 

With ML 2009-11, HUD included an Attachment showing several examples of the calculation of the required monetary investment that the senior must make in HECM for purchase transactions.
 




Underwriting Impact Comment: Be very careful with verification of earnest money and funds to close. There still is not a firm, clear, definite, permitted (did I use enough adjectives?) conclusion on the subject of gifts from close family members. Your underwriter will advise you when a more clear statement on this topic is available.

 

Perhaps the best approach for your first few purchases would be to make sure all parties are communicating; realtors, borrowers, processors, underwriters and closing/settlement agents alike.

Besides new rules and guidance, the issue of incorporating new behaviors for all of the parties is a very big factor in the success of the transaction. Remember, many borrowers haven’t done a purchase in 20 years, most Realtors know how to get a “forward” purchase to close, most title/settlement agents are familiar with closing documents and requirements for a “forward” purchase, and lastly, for some investors, funding a loan on the day it is supposed to fund may be an excruciatingly painful endeavor.

 

Oh, did I mention many of our loan originators are not from the “forward world” and we also have that new “live-pricing” lock your loan issue! 

Please be aware of the need for a 3 day right of rescission if the borrower is also bringing additional proceeds to the table to provide for a line of credit facility.

 

Lastly, as we raise our glasses to The Reverse Review as the magazine enters its second year of publication, a special toast to the addition of another permanent fixture to the Magazine, Ryan LaRose, the man behind, Ask The Servicer. Ryan and I look forward to really starting some trouble with you, our readers, as we continue to tell you what you don’t want to hear, claim you didn’t know and scratch your head wondering “who the he$% came up with that great idea!”



 

Cheers.