Reverse Your Mortgage

Highlights and Trends from the National Reverse Mortgage Lenders Association 2009.

I have just returned from the national Association meeting on reverse mortgages. It certainly was a whirlwind of information, considering today’s economy and real estate environment. Here are a few highlights from the meeting:

1.    Trends in FHA, by law. FHA must have a positive cash flow. It cannot have a shortfall. Last year, the reverse mortgage program had $800 million shortfall and requested resources from Congress. It was denied. In order to sustain the program HUD cut the by 10%. A HUD official from the single-family housing program, commented if housing values continue to decline, HUD may have to further make changes ( reduce reverse mortgage proceeds further) to maintain the integrity of the program.

2.    There will be changes in reverse mortgage counseling protocol. HUD counselors will be required to assess household budgets. This will help the counselors gather information so that they can help borrowers decide whether a reverse mortgage makes sense for their financial situation.

3.    Financial materials will be required to be provided in advance to borrowers. Prior to their counseling. These materials may be provided may be provided by the lender. The borrower has chosen to work with.

4.    There will be no more on-demand reverse mortgage counseling sessions.

5.    Counselors will be required to make sure the clients fully understand how a reverse mortgage works. They will be asking a series of questions of the potential borrower during the counseling session.

6.    HUD is seriously working on developing what is called an ”HECM Mini”. This is a reverse mortgage for borrowers 62 years old and older similar to the current HECM products. The difference will be that the borrower will not be required to take the full amount of the proceeds. This is an option for seniors who do not need as much money of a reverse mortgage. This HECM Mini will be at least a year in the making.

7.    There recently was a legislative notice of non-concurrence. In regards to reverse mortgages and co-ops. This means there will be further delay on the mortgagee letter to allow reverse mortgages to be done on co-ops. When asked, Meg Burns, head of single-family housing at HUD about this delay, she gave the opinion that they would be able to resolve this issue by the first quarter of 2010.

8.    There is a new standardized good faith estimate that will be implemented in January 2010.

9.    There have been 650 reverse mortgage is used for purchase to date.

10.   Mortgage insurance is required on reverse mortgages. It has been long perceived as expensive loan due to the insurance. It was commented by Meg Burns had a single family housing at HUD that the current structure of mortgage insurance on reverse mortgages is the least expensive. There has been talk for years, about reducing the upfront premium and increasing the ongoing percentage a borrower pays in mortgage insurance on reverse mortgages. HUD is still considering a restructuring of the program. But it was reiterated that by law, FHA, must have a positive cash flow. A 1% up front premium will be considered.

11.   Demand is still growing on reverse mortgages.

12.   There is over 93% satisfaction rate amongst borrowers who have attained a reverse mortgage.

13.   FHA and the housing Commissioner are focusing on risk. The current housing market has created this focus.

14.   On a positive note, Ginnie Mae A Federal Corporation that insures mortgage-backed securities is ensuring reverse mortgage securities.

15.   There is an increased investor and Wall Street interest in reverse mortgage securities.

16.   Floating-rate products are attractive to banks.

17.   As the market expands, it will make way for the development of jumbo reverse mortgages. However, it was the general opinion that we are at least 12 to 18 months before the development of jumbo reverse mortgages. The property value will have to be $1 million or more in order to make sense in the utilization of a reverse mortgage.

18.   HUD is concerned about tax and insurance defaults amongst reverse mortgage recipients.

19.   Ethical advertising is a must in the reverse mortgage business. Anything less will not be tolerated. Association members are asked to help police the industry and keep our industry clean. The Association has published updated guidelines and requirements in the advertising of reverse mortgages.

20.   Condominium projects approved prior to October 1, 2008 will need to be recertified. They can be recertified by HUD or an approved lender. Every two years all projects will need to be preapproved. It takes a local HUD office, approximately 4 to 8 weeks, with proper documentation to approve a project. Associations subject to lawsuits may come up against some difficulties in getting approved. HUD recognizes nuisance lawsuits, however the projects subjected to these lawsuits will need to submit supporting documents, and will be considered on a case-by-case basis.

21.   The average borrower of reverse mortgage is 74 years old.

22.   The average borrower’s income is $2500 a month.

23.   The average borrower has a $1000 shortfall. Every month.

24.   When surveyed, three years later, reverse mortgage borrowers showed a 91% improved financial situation.

25.   Reverse mortgage program is 20 years old.

26.   30% of loans that are currently done are FHA. 8% of FHA loans are in default.

$625,500 FHA LENDING LIMIT EXTENDED THROUGH DEC. 2010 -FINALLY, SOME GOOD NEWS OUT OF WASHINGTON!

House Approves Loan Limit Extension; House, Senate Leaders Reach Agreement on Home Buyer Tax Credit
The House and Senate approved a continuing resolution that includes a provision that would extend current loan limits for FHA and the government-sponsored enterprises through next year.
Additionally, Senate leaders announced they have agreed to an extension of the $8,000 first-time home buyer tax credit through April 30. The popular credit, which has strong support from the Mortgage Bankers Association (MBA), is set to expire Nov. 30.
The CR, which keeps the federal government running through Dec. 18, passed the House on a 247-178. The Senate vote was 72-28.
MBA commended both chambers on their actions. "Given the lack of a private secondary mortgage market, FHA, Fannie Mae and Freddie Mac are pretty much the only game in town," said MBA Chairman Robert Story Jr., CMB. "Extending the current loan limits through 2010 will allow more loans to qualify for these important programs and will help keep mortgage credit more accessible and affordable for qualified borrowers."
The CR provision would keep in place current conforming loan limits of $625,000 ($729,750 in designated high-cost areas). Without approval from the Senate, those limits will expire on Dec. 31.
MBA and other industry trade groups sent a letter this week to leadership of the House and Senate urging Congress to pass legislation “as soon as possible” to extend current higher loan limits. The letter called the higher limits a “key component of the economic recovery efforts because they help make affordable loans available for a broader spectrum of consumers who want to purchase a home or refinance an existing mortgage.”
"As we try to maintain the momentum of the housing recovery, providing affordable financing for qualified borrowers is critical," Story said. "Extending the loan limits, along with other initiatives such as extending and expanding the homebuyer tax credit, will help restore stability to the housing and mortgage markets."  

Meanwhile, members of the Senate said they substantially reached an agreement on extending the first-time home buyer tax credit, adding it to a bill that would extend expiring unemployment benefits.
The amendment would extend the existing $8,000 tax credit for first-time home buyers and offer a new $6,500 credit for existing homeowners who have lived in their current residence for a consecutive five-year period within the past eight years. Under the amendment, home buyers would be required to be under contract by April 30 and close before July 1.
MBA has supported extension and expansion of the tax credit, noting that the Internal Revenue Service recently reported that more than 1.4 million taxpayers have benefited from the tax credit, enacted by Congress as part of the Housing and Economic Recovery Act of 2008.
“MBA believes the first-time home buyer tax credit has had a stimulating impact on our economy, and MBA supports extending and expanding it so it can help more buyers and sellers,” MBA said in a recent Call to Action from its grassroots advocacy arm, the Mortgage Action Alliance. “Our fragile economy is just beginning to show signs of stabilizing. We should not jeopardize our recovery by letting this tax credit expire. The home buyer tax credit is helping hundreds of thousands of Americans realize the American dream, and it is creating thousands of jobs that rely on homeownership .

As a side note, the original bill did not include the provision to includes reverse mortgages in the extension of the 625,500 FHA lending limit extension. Lobbyists, including AARP and the National Reverse Mortgage Lenders Association were key in adding reverse mortgages to the extension.

HUD Reduces Reverse Mortgage Proceeds by 10% -Housing Values/Economy affect FHA Program

For the first time in the history of the FHA Reverse Mortgage program, it is running at just under an $800 million dollar deficit.

FHA insures reverse mortgages against lender losses and borrower owing more than their home values when their reverse mortgage loans become due.* until recently the FHA reverse mortgage program has never run a deficit. But with falling real estate values, FHA has been paying more on claims.

In order to preserve the program helping older home owners to access their equity HUD posted a Mortgagee Letter 09-43 lowering proceeds by 10%.

All loans with case numbers (loans) after October 1, 2009 will be affected.

It is unfortunate the program has been affected by the economy; however I commend HUD in taking into account the importance of preserving the reverse mortgage program. Over 93% of consumers who attain a reverse mortgage are very happy with them. In the appropriate situation, reverse mortgages change the lives of the better older homeowners.

A couple of years ago I thought the reverse mortgage industry was on its way to developing a market where FHA reverse mortgages would take a back seat to the proprietary products. Then the recession hit. This reduction of proceeds on FHA reverse mortgages is part of the “reset” that is happening across our economy on multiple levels. The program will survive. We will continue to help senior homeowners improve the quality of their lives with this program. It will just be a less money. The reality is that some consumers will have to, some will have to and some will have to become very creative in order to ride out the shift in our society.

* See: Reverse Mortgage post 1/19/09 they said I can never owe more than my home value, HUD clarifies what is true when your reverse mortgage becomes due

if you have a reverse mortgage question, call Angella Conrard, Reverse Mortgage Advisor at 866-949-7030 or log onto www.reverse -your -mortgage.com

CONDO OWNER’S CONTEMPLATING A REVERSE MORTGAGE MAY WANT TO ACT SOONER TO AVOID LONG DELAYS

Earlier this summer HUD issued MORTGAGEE LETTER 2009-19. This letter indicates that all condo projects with the exception of single family detached condos that were FHA approved prior to September 2008 will need to be reapproved. In years past, when a condominium homeowner wished to attain a reverse mortgage in a project that was not FHA approved, the lender could use what was called a “FHA Spot Condo Affidavit”. This was essentially a 1 page questionnaire filled out by the association and was submitted with the reverse mortgage package and utilized by the lender in attaining mortgage insurance through FHA for the loan. No longer will lenders be able to use this questionnaire. Starting October 1, 2009 all approved projects prior to September 2009 will be wiped out on FHA connection & will have to go through the approval process by either their local HUD office or by an approved lender review. I can only anticipate this to be somewhat of a lengthy and muddled process that will be added to an already heavily regulated loan process. It is interesting to observe the boomerang affect the subprime experience is having on the mortgage process in general. I personally am in favor of some assurance that people understand the loans they are attaining. However I caution our legislatures in not overburdening the public as to curtail their freedom in attaining financial products and squashing private business in the process by over regulating our freedoms.  I hope I am proved wrong in that this recertification process will not be lengthy. Here is the Mortgagee Letter for your own review. Let me know WHAT YOU THINK!  Or Click Here to Download Mortgagee Letter 2009-19

June 12, 2009                                                                         MORTGAGEE LETTER 2009-19

TO:                 ALL APPROVED MORTGAGEES

ALL FHA ROSTER APPRAISERS

SUBJECT:    Condominium Approval Process – Single Family Housing

In accordance with the passage of the Housing and Economic Recovery Act (HERA) of 2008, the Federal Housing Administration (FHA) is implementing a new approval process for Condominium Projects to insure mortgages on individual units under Section 203(b) of the National Housing Act.  FHA will now allow lenders to determine project eligibility, review project documentation, and certify to compliance of Section 203(b) of the NHA and 24 CFR 203 of HUD’s regulations.  HUD will continue to maintain a list of Approved Condominium Projects.  The requirements of this Mortgagee Letter are effective for all case numbers assigned on or after October 1, 2009 except as noted.

The purpose of this Mortgagee Letter is to provide guidelines and instructions on options available to lenders to receive mortgage insurance on condominium units which are located in a project.  The lender will be required to retain all the project legal documents, contracts, conveyances, plats, plans, insurance coverage, presale and owner occupancy conditions and other documentation in connection with their review and approval of the condominium project.  When requested, the lender must provide such documentation to HUD staff for verification of compliance with HUD’s regulations.  

I.          Approval Processing Options

A. The lender will have two condominium project approval processing options.  The applicable documentation requirements will be the same for each option:

1.      HUD Review and Approval Process (HRAP).

2.      Direct Endorsement Lender Review and Approval Process (DELRAP), outlined in this Mortgagee Letter.  This option is only available to lenders who have unconditional Direct Endorsement authority and staff with knowledge and expertise in reviewing and approving condominium projects.

B. The processing options stated above will be applicable to condominium developments that are: 

1. Proposed/Under Construction;

2. Existing Construction; or

3. Conversions.

II.                Eligible Projects

The Condominium Project has been created and exists in full compliance with applicable State law requirements of the jurisdiction in which the Condominium Project is located, and with all other applicable laws and regulations.

III.       Ineligible Projects

A.    Condominium Hotel or “Condotels”

B.     Timeshares or segmented ownership projects

C.     Houseboat projects

D.    Multi-dwelling unit condominiums [i.e. more than one dwelling per condominium unit]

E.     All projects not deemed to be used primarily as residential

IV.       General Requirements   

A.    Site Condominiums

Site Condominiums are single family detached dwellings encumbered by a declaration of condominium covenants or condominium form of ownership.  Condominium Project      approval is not required for Site Condominiums; however, the Condominium Rider (Attachment D) must be included in the FHA case binder submitted for insurance endorsement.  Manufactured housing condominium projects (MHCPs) may not be processed as site condominiums; these projects will require approval under HRAP.

NOTE:  Site Condominiums requirements are effective immediately with issuance of this Mortgage Letter.

B.     “Spot Loan” Approval Process

The Spot Loan Approval process as defined in Mortgage Letter 1996-41 is eliminated with issuance of this guidance.  The DELRAP and HRAP processes have been streamlined to allow for uncomplicated condominium project approvals eliminating the need to approve units on a “spot loan” basis. 

C.     FHA-to-FHA Transactions

Project Approval is not required for:

a.       FHA‑to‑FHA streamline refinance transactions; or

b.      FHA/HUD Real Estate Owned (REO) Division sales.

D.    Environmental Review Requirements

If a lender elects to use the HRAP option, then environmental reviews will not be

required for projects that, at the time that condominium project approval is requested,

have progressed beyond that stage of construction where HUD has any influence over the

remaining uncompleted construction.  This occurs when:

·         a condominium plat or similar development plan and any phases delineated therein have been reviewed and approved by the local jurisdiction and, if applicable, recorded in the land records, and

·         the construction of the project’s infrastructure (streets, stormwater management, water and sewage systems, utilities, facilities (e.g., parking lots, community building, swimming pools, golf course, playground, etc.) and buildings containing the condominium units has proceeded to a point that precludes any major changes.

Environmental reviews will not be required for condominium projects approved using the

DELRAP option.  If the appraiser identifies an environmental condition or the lender is

aware of an existing environmental condition through remarks provided on the Builder’s

Certification, form HUD-92541, the appraisal or other known documentation, the lender

must avoid or mitigate the following conditions before completing its review process:

1.      The project is located in a Special Flood Hazard Area designated on a Federal Emergency Management Agency flood map.

2.      Potential noise issues, where the property is located within 1000 feet of a highway, freeway, or heavily traveled road, within 3000 feet of a railroad, or within one mile of an airport or five miles of a military airfield.

3.      The property has an unobstructed view, or is located within 2000 feet, of any facility handling or storing explosive or fire-prone materials.

4.      The property is located within 3000 feet of a dump or landfill, or of a site on an EPA Superfund (NPL) list or equivalent state list, or a Phase I Environmental Site Assessment indicates the presence of a Recognized Environmental Condition or recommends further (Phase II) assessment for the presence of contaminants that could affect the site.

5.      The property has any hazards or adverse conditions listed in Section 1.f. of the Builder’s Certification, including, but not limited to, high ground water levels, unstable soils, or earth fill.

6.      The project is located in a wetland designated on National Wetlands Inventory maps or designated by State or local authorities.

7.      The project is on the National Register of Historic Places or is within a historic district listed on the Register.

8.      The appraiser or DE lender is aware of any other condition that could adversely affect the health or safety of the residents of the project.

V.        Project Eligibility Requirements

A.     The following requirements apply to all Condominium Project approvals:

·         Projects consist of two units or more.

·         Projects must be covered by hazard and liability insurance and, when applicable, flood insurance.

·         Right of first refusal is permitted unless it violates discriminatory conduct under the Fair Housing Act regulation in 24 CFR 100.

·         No more than 25 percent of the property’s total floor area in a project can be used for commercial purposes.  The commercial portion of the project must be of a nature that is homogenous with residential use, which is free of adverse conditions to the occupants of the individual condominium units. 

·         No more than 10 percent of the units may be owned by one investor.  This will apply to developers/builders that subsequently rent vacant and unsold units.  For two and three unit condominium projects, no single entity may own more than one unit within the project; all units, common elements, and facilities within the project must be 100 percent complete; and only one unit can be conveyed to non-owner occupants.

·         No more than 15 percent of the total units can be in arrears (more than 30 days past due) of their condominium association fee payment. 

·         At least 50 percent of the total units must be sold prior to endorsement of any mortgage on a unit. Valid presales include an executed sales agreement and evidence that a lender is willing to make the loan.[1] 

·         At least 50 percent of the units of a project must be owner-occupied or sold to owners who intend to occupy the units.[2] For proposed, under construction or projects still in their initial marketing phase, FHA will allow a minimum owner occupancy amount equal to 50 percent of the number of presold units (the minimum presales requirement of 50 percent still applies). 

·         Legal Phasing is permitted for condominium processing.  It is recommended that developers submit all known phases for initial project approval.  For purposes of calculating the owner-occupancy percentage:

a.       On multi-phased projects the owner-occupancy percentage is calculated on the first declared phase and cumulatively on subsequent phases if the ownership of the condominium project remains the same;

b.      If multi-phasing includes separate ownership per phase, each phase is calculated individually; or

c.       Single-phase condominium project approval requests must meet the owner-occupancy percentage requirement.

·         FHA Concentration

a.      Projects consisting of three or less units will have no more than one unit encumbered with FHA insurance.

b.     Projects consisting of four or more units will have no more than 30 percent of the total units encumbered with FHA insurance.

·         Reserve Study - a current reserve study must be performed to assure that adequate funds are available for the funding of capital expenditures and maintenance.  A current reserve study must be no more than 12 months old – if recent events or market conditions have affected the finished condition of the property that information must be included.  When reviewing the reserve study, consideration must be given to items that have been replaced after the time that the reserve study was completed.

VI.       Manufactured Housing Condominium Projects

Pursuant to HERA, manufactured housing condominium projects are now eligible for FHA mortgage insurance.  Accordingly, all outstanding and current FHA Manufactured Housing individual unit requirements remain applicable for both Home Equity Conversion Mortgages (HECM) and forward mortgages, including elevations in flood zones and foundation requirements.  MHCPs must be submitted to the applicable Homeownership Center for review and approval – these projects are ineligible for DELRAP processing.  MHCPs may not be processed as site condominiums; these projects will require approval under HRAP.

1.      Appraisal reporting requirements for condominium manufactured homes:

a.          Appraisal must be reported on the Manufactured Home Appraisal Report (Fannie Mae Form 1004C).

b.         Subject condominium project must be inspected and the Project Information section of the Individual Condominium Unit Appraisal Report (Fannie Mae Form 1073) must be completed and included as an addendum to the appraisal report.

c.          Comparable sales must be condominium manufactured homes.  Detailed explanations must be provided when search parameters are expanded due to the lack of comparable sales in subject market area.

VII.     Condominium Conversions

Conversion to condominiums occurs in those projects which involve changing the title of an existing structure generally under one title, to property that is separated into units so that the title to most units can be held separately.   Changes to condominium conversion requirements are defined below:

1.      The one-year waiting period requirement for conversions is eliminated;

2.      In the event that FHA is insuring a mortgage on a unit and an undivided interest in the common elements on a project undergoing remodeling or rehabilitation, the entire condominium project, including the common facilities, must be 100 percent completely built before any mortgage may be endorsed.  Escrow provisions will be permitted for weather related delays for common areas only.

VIII.    FHA Connection (FHAC)

System modifications will be made to capture additional information, remove obsolete fields, and identify points of contacts.  Major planned system modifications are:

1.      Establishment of a Condominium Project Approval screen in FHAC that will be used by DE lenders and HUD staff to enter approval, rejection and recertification data.

2.      System generated condominium project identification numbers based on the HOC of jurisdiction.

NOTE:  While major system modifications have been identified, other modifications will be made and released as necessary to ensure collection of all valid information.

IX.       Condominium New Construction Pre-approval and Inspection Requirements

Mortgagee Letter 2001-27 prohibited condominium processing under those guidelines.  This Mortgagee Letter now permits condominium processing under the policy as established below.

In cases where a building permit and a certificate of occupancy (or its equivalent) are issued by a local jurisdiction that performs a minimum of three inspections (typically the footing, framing and final) neither an Early Start Letter nor a HUD approved ten-year warranty plan is required.  For those jurisdictions that do not issue a building permit (or its equivalent) prior to construction and a Certificate of Occupancy (or its equivalent) upon completion of construction, a condominium unit that is one year old or less must have either an Early Start Letter (with a minimum of three inspections by an FHA Roster Inspector) or be covered by a HUD-approved ten-year warranty plan (with a final inspection by a FHA Roster Inspector) to be eligible for high-ratio mortgage insurance.  All condominium types are eligible to follow this process (e.g. Multi-family).  Projects are still required to be on the FHA-approved condominium list.

FHA will require the completion and retention of the following documents when processing new construction condominium project approvals:

·         Builder’s Certification of Plans, Specifications and Site, form HUD-92541

·         Builder’s Warranty, form HUD-92544

·         Building Permit (or its equivalent)

·         Final Certificate of Occupancy (or its equivalent)

            FHA will not accept a temporary Certificate of Occupancy; all units within the building

(where the specific unit that is security for the insured financing is located) must be complete.

X.        General Processing Steps for DELRAP or HRAP

A.    Determine acceptability of the site and location of the project.  Refer to Attachment A, Condominium Project Approval Matrix.

B.     Review the project’s financial and legal documents; if acceptable, authorized personnel will sign and date the Lender Certification of Condominium Requirements

(Attachment B).

C.     Place the Lender Certification of Condominium Requirements and other required certifications in the FHA case binder.

D.    Retain and maintain all documents used to review and approve the project for a period of three years from the date of project approval.

E.     Mixed condominium review and processing is not permitted.  If a lender opts to participate in the DELRAP process, all future processing submissions must be processed, accordingly, in that sole and particular manner with the exception of manufactured housing condominium project approvals (these must be submitted to the applicable Homeownership Center for review and approval).

F.      If a project is listed as Rejected or Withdrawn on the FHA-approved condominiums list, the only approval process accepted is HRAP. 

G.    Second and subsequent lenders that submit a unit for insurance in a project that is listed on the FHA-approved condominium list are not required to complete any further approval process.  At the lender’s discretion, they may seek any additional information to satisfy their own requirements and/or perform their own due diligence.  FHA will require the lender to certify it has no knowledge of circumstances or conditions that might have an adverse effect on the project or cause a mortgage secured by a unit in the project to become delinquent. 

H.    Subsequent phases being approved by a different lender must follow the general procedures listed here in Section X.  The original lender must also follow these general procedures but will have already satisfied some of the steps listed.

I.       All required certifications, as applicable, must be included in the FHA case binder submitted for insurance endorsement.

J.       For both new construction and conversions if the developer intends to market five or more units within the next 12 months with FHA mortgage insurance, an Affirmative Fair Housing Marketing Plan (AFHMP) or a Voluntary Affirmative Marketing Agreement (VAMA) must be in place.  Form HUD-935.2C, Affirmative Fair Housing Marketing Plan – Condominium or Cooperatives, is to be used for condominium projects.  This completed form must be submitted to the Director of the Processing and Underwriting Division in the jurisdictional

HOC

for approval.  If “a, b, c, or d” is checked on response to Question 2 in the Applicability section, the developer is not required to complete an AFHMP.  The developer should complete block 11 on form HUD-92541, Builder’s Certification of Plans, Specification and Site.

K.    Environmental reviews will be required for proposed and under construction project approvals submitted under the HRAP option consistent with the Environmental Review Requirements listed in Section IV.  D.  Environmental review is not required under DELRAP, but the lender must take necessary actions to avoid or mitigate identified environmental conditions prior to completing its project review.

L.     Transfer of control of the Homeowners Association shall pass to the owners of units within the project no later than the earlier of the following:

1.      120 days after the date by which 75 percent of the units have been conveyed to the unit purchasers, or

2.      One year after completion of the project evidence by the first conveyance to a unit purchaser.

XI.       Certification for Initial Approval

Lenders must provide certifications on company letterhead signed by a company authorized representative (signature stamps or electronic signatures are not authorized) that:

1.      The eligible condominium project complies with applicable FHA requirements addressed within this Mortgagee Letter;

2.      All condominium legal documents meet HUD regulations, state and local condominium laws; and

3.      Pre-sale and owner occupancy ratios per loan are met.

NOTE:  FHA will not require an attorney's certification; however, lenders may obtain this as part of their due diligence process.  Lenders are reminded that this document will not replace other condominium certifications required from the lender.

XII.     Certification of Projects Previously Approved

If a project has been previously approved, lenders must certify that they are not aware of any change in circumstances since initial approval of the project that would result in the project no longer complying with FHA requirements.

XIII.         Recertification of Project Approvals

Condominium Project approvals will expire two years from the date it has been placed on

the list of approved condominiums.  This will also apply to all projects currently on the list of approved condominiums.  Further participation in the program after this two-year period has expired will require recertification to determine that the project is still in compliance with HUD’s owner-occupancy requirement and that no conditions currently exist which would present an unacceptable risk to FHA.  Items that should be given consideration are:

1.      Pending special assessments,

2.      Pending legal action against the condominium association, or its officers or directors,

3.      Hazard, liability insurance and when applicable flood insurance.

XIV.       Quality Assurance

Monitoring the condominium approval process is critical to the success of the program.  Lenders who approve condominium projects utilizing the DELRAP option will be required to submit a copy of the complete condominium project approval package to the applicable Homeownership Center within five business days of approval.  Lenders are required to submit the first five DELRAP approvals for review.  Further, to manage FHA’s risk, and ensure compliance with all condominium project policy requirements, additional condominium project approvals will be selected for review.  The criteria for selection of the additional approvals will be determined and lenders will be notified in future guidance.

XV.          False Certifications

Title 18 U.S.C. 1014, provides in part that whoever knowingly and willfully makes or uses a document containing any false, fictitious, or fraudulent statement or entry, in any matter in the jurisdiction of any department or agency of the United States, shall be fined not more than $1,000,000 or imprisoned for not more than 30 years or both.  In addition, violation of this or others may result in debarment and civil liability for damages suffered by the Department.

XVI.       Insurance of Individual Units

All applicable, outstanding and any additional FHA insurance requirements not defined in this guidance must be met for individual units.

If you have questions regarding this Mortgagee Letter, please call the FHA’s Resource Center at 1-800-CALL-FHA (1-800-225-5342).  Persons with hearing or speech impairments may access this number via TDD/TTY by calling 1-877-TDD-2HUD (1-877-833-2483).

                                                                        Sincerely,

Brian D. Montgomery

                                                                        Assistant Secretary for Housing-

     Federal Housing Commissioner

Attachments

 

Attachment A

	Condominium Project Approval Matrix
		Proposed/UC	Existing	Conversion
1	All Condominium Legal Documents	x	x	x
a	Recorded Plat Map indicating Legal Description	x	x	x
b	Recorded Covenants, Conditions and Restrictions (CC&R’s)	x	x	x
c	Signed and Adopted Bylaws	x	x	x
d	Articles of Incorporation filed with the State	x	x	x
e	Recorded Condominium Site Plans	x	x	x
2	Plan or Evidence of Transfer of Control	x	x	x
3	Proposed or Actual Budget	x	x	x
4	Reserve Study	x	x	x
5	Management Agreement, if applicable	x	x	x
6	Equal Employment Opportunity Certificate (Form HUD 92010)	x
7	Affirmative Fair Housing Marketing Plan or Voluntary Affirmative Marketing Agreement (VAMA)	x		x
8	FEMA Flood Map	x	x	x
9	Estimated Construction Completion Date	x		x
10	Outstanding or Pending Litigation Analysis		x	x
11	Pending Special Assessment Analysis		x

 

Attachment B

LENDER CERTIFICATION TO CONDOMINIUM REQUIREMENTS

The undersigned hereby certifies that (1) the Lender has reviewed the project and it meets all requirements of Section 203(b) of the National Housing Act, 24 CFR 203, State and local condominium laws and any Mortgage Letters thereto applicable to the review of condominiums; (2) to the best of his or her knowledge and belief, the information and statements contained in this application are true and correct, and (3) the Lender has no knowledge of circumstances or conditions that might have an adverse effect on the project or cause a mortgage secured by a unit in the project to become delinquent (including but not limited to: defects in construction; substantial disputes or dissatisfaction among unit owners about the operation of the project or the owner’s association; and disputes concerning unit owners; rights privileges, and obligations).  The undersigned understands and agrees that the Lender is under a continuing obligation to inform HUD if any material information compiled for the review and acceptance of this project is no longer true and correct.   

                                                                                                                                                           

Authorized Lender Representative                                                                                 Date

(Signature and Title)

Title 18 U.S.C. 1014, provides in part that whoever knowingly and willfully makes or uses a document containing any false, fictitious, or fraudulent statement or entry, in any matter in the jurisdiction of any department or agency of the United States, shall be fined not more than $1,000,000 or imprisoned for not more than 30 years or both.  In addition, violation of this or others may result in debarment and civil liability for damages suffered by the Department.

 

 Attachment C

LENDER CERTIFICATION TO CONDOMINIUM REQUIREMENTS FOR APPROVED PROJECTS

The undersigned hereby certifies that (1) the Lender has verified the condominium unit in connection with this loan file has been verified to be in a project that appears on FHA’s list of approved condominium projects; (2) to the best of his or her knowledge and belief, the information and statements contained in this application are true and correct, and (3) the Lender has no knowledge of circumstances or conditions that might have an adverse effect on the project or cause a mortgage secured by a unit in the project to become delinquent (including but not limited to: defects in construction; substantial disputes or dissatisfaction among unit owners about the operation of the project or the owner’s association; and disputes concerning unit owners; rights privileges, and obligations).  The undersigned understands and agrees that the Lender is under a continuing obligation to inform HUD if any material information compiled for the review and acceptance of this project is no longer true and correct.   

                                                                                                                                                           

Authorized Lender Representative                                                                                 Date

(Signature and Title)

Title 18 U.S.C. 1014, provides in part that whoever knowingly and willfully makes or uses a document containing any false, fictitious, or fraudulent statement or entry, in any matter in the jurisdiction of any department or agency of the United States, shall be fined not more than $1,000,000 or imprisoned for not more than 30 years or both.  In addition, violation of this or others may result in debarment and civil liability for damages suffered by the Department.

Attachment D

condominium rider THIS CONDOMINIUM RIDER is made this _______________ day of _____________, 20__, and is incorporated into and shall be deemed to amend and supplement the Mortgage, Deed of Trust or Security Deed ("Security Instrument") of the same date given by the undersigned ("Borrower") to secure Borrower's Note ("Note") to ________________________________ ("Lender") of the same date and covering the Property described in the Security Instrument and located at:   [Property Address]   The Property includes a unit in, together with an undivided interest in the common elements of, a condominium project known as:   [Name of Condominium Project]   ("Condominium Project"). If the owners association or other entity which acts for the Condominium Project ("Owners Association") holds title to property for the benefit or use of its members or shareholders, the Property also includes Borrower's interest in the Owners Association and the uses, proceeds and benefits of Borrower's interest.   CONDOMINIUM COVENANTS.  In addition to the covenants and agreements made in the Security Instrument, Borrower and Lender further covenant and agree as follows:                 So long as the Owners Association maintains, with a generally accepted insurance carrier, a "master" or "blanket" policy insuring all property subject to the condominium documents, including all improvements now existing or hereafter erected on the Property, and such policy is satisfactory to Lender and provides insurance coverage in the amounts, for the periods, and against the hazards lender requires, including fire and other hazards included within the term "extended coverage," and loss by flood, to the extent required by the Secretary, then: (i) Lender waives the provision in the Security Instrument for the monthly payment to Lender of one-twelfth of the yearly premium installments for hazard insurance on the Property, and (ii) Borrower's obligation under the Security Instrument to maintain hazard insurance coverage on the Property is deemed satisfied to the extent that the required coverage is provided by the Owners Association policy. Borrower shall give Lender prompt notice of any lapse in required hazard insurance coverage and of any loss occurring from a hazard. In the event of a distribution of hazard insurance proceeds in lieu of restoration or repair following a loss to the Property, whether to the condominium unit or to the common elements, any proceeds payable to Borrower are hereby assigned and shall be paid to Lender for application to the sums secured by this Security Instrument, with any excess paid to the entity legally entitled thereto. Borrower promises to pay all dues and assessments imposed pursuant to the legal instruments creating and governing the Condominium Project.   If Borrower does not pay condominium dues and assessments when due, then Lender may pay them. Any amounts disbursed by Lender under this paragraph shall become additional debt of Borrower secured by the Security Instrument. Unless Borrower and Lender agree to other terms of payment, these amounts shall bear interest from the date of disbursement at the Note rate and shall be payable, with interest, upon notice from Lender to Borrower requesting payment.   BY SIGNING BELOW, Borrower accepts and agrees to the terms and provisions contained in this Condominium Rider.   _________________________ (SEAL) Borrower   _________________________ (SEAL) Borrower   [ADD ANY NECESSARY ACKNOWLEDGEMENT PROVISIONS.]

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[1] Secondary residences can only be included if it meets the requirements of 24

CFR

203.18(f)(2).

[2] If the owner-occupancy ratio includes presales, FHA requires an executed sales agreement and corresponding evidence that a lender is willing to make the loan and the buyer intends to occupy the unit.  A separate owner-occupancy certification is also required in the FHA case binder for loans where the Individual Condominium Unit Appraisal Report, Fannie Mae Form 1073, does not contain the required data or the condominium project is proposed or under construction.

REVERSE MORTGAGE PROCEEDS MAY BE GOING DOWN – WHY REVERSE MORTGAGES ARE AN EXPENSIVE LOAN

-         Here’s  a FHA history & current events lesson as to why

Although the reverse mortgage program has been around since the 1980’s it is still a very immature program and an expensive loan. The largest cost in attaining a HECM reverse mortgage is the FHA mortgage insurance. FHA is a government  agency providing insurance designed to urge lenders to lend and make it easier for borrowers to borrow. Here is how FHA started.

Just after the great depression:

• Two million construction workers were out of work.
• Banks demanded a 50% down payment and mortgages to be paid off within 3 to 5 years.
• 9 out of 10 American families could not afford to own their own home.

FHA was created to promote housing ownership. The agency started to insure loans and urge lenders to offer lower down payments and affordable interest rates to Americans who would have been turned down for a mortgage. 

For a similar reason, FHA started to endorse and insure reverse mortgages in the 1980’s. Many seniors needed a resource of retirement cash and most people’s largest asset is their home. Because reverse mortgages differed from traditional mortgages in that they were based upon the asset value & actuarial tables, it was an “out of the box” financial tool. It made sense for FHA to urge lenders to lend seniors money on the largest asset that people have, their home and get the industry started.

The purpose of the insurance is twofold. If the loan balance exceeds the home value at the time the loan becomes due, the lender can put in a claim to FHA & be reimbursed for the difference. Along the same lines, the borrower can be assured that if the lender goes out of business, FHA takes over the loan and the borrower’s funds and loan continues as contracted. An added assurance is the estate of the borrower are not responsible if the home’s sales proceeds are not enough to pay off the reverse mortgage to the lender. The estate is only responsible for an excess loan balance if they choose to keep the home in comparison to selling it.

For years, FHA has been criticized by the lending industry for what was viewed as an excessive premium to insure these loans. Lenders have endured shocked responses from financial professionals and consumers regarding the costs involved in attaining a reverse mortgage. The largest fee in attaining a reverse mortgage is the upfront 2% MIP & ½% per year (mortgage insurance premium).

With the plummet of home values, all that has changed. In June 2009, for the first time in the history of the program, FHA asked the administration for a $798 million subsidy or to decrease reverse mortgage proceeds to seniors and avoid the subsidy.  

I have personally seen reverse mortgages that balances exceed the value of the home and the borrower still had access to $40k in a credit line. This will be an automatic claim by the lender  to FHA when the loan becomes due. I think we will see more of these.

It’s an unfortunate additional result of today’s economic state. In order to avoid further burden on the government and to keep the program alive, reverse mortgage proceeds will have to be reduced. Late last week, The House of Representatives passed HR 3288.

The House Appropriations Committee approved the appropriations bill on July 17,2009  instructs HUD to reduce the principal amount a senior can receive on a HECM.

Peter Bell, president of the National Reverse Mortgage Lenders Association, told National Mortgage News that the committee’s action "reduces what seniors will get, which is problematic at a time when there is great need."

As a lender & advocate for seniors, I am saddened by the challenges that the program faces. The program has changed many lives for the better and will continue to do so. It is my belief that the reverse mortgage program will prevail with changes and will eventually become so popular that FHA reverse mortgages will be a small portion of the market as the competition rises by private lenders. Retirees need funds to retire on. It only makes sense they will use these safe loans to tap into their equity for retirement.

If you have a question of this issue or on reverse mortgages in general, CALL Angella Conrard, Reverse Mortgage Advisor 866-949-7030 or log onto www.reverse-your-mortgage.com

History of Reverse Mortgages

FHA asks for subsidy

Reverse Mortgage Subsidy or Decrease in Proceeds

HUD’s New Reverse Mortgage Counseling Set of Rules Includes Test for HECM Borrowers

 

The Department of Housing and Urban Development (HUD) is introducing a new counseling protocol to help borrowers consider whether a reverse mortgage is the right choice for them.

·       The new guidelines make sure that the clients initiate contact with counseling agencies.

o   There have been some instances where lenders have made the calls on behalf of their clients and then handed them the phone. This will no longer be allowed.

·       It also requires that lenders provide every client with a list of no fewer that ten HUD approved counseling agencies, five must be with in the state where the borrower resides and one must be within a reasonable driving distance.

o   HUD used to require counseling be performed face to face unless the client requested to receive telephone counseling. This proved to be difficult for some elderly borrowers and a majority of borrowers preferred the telephone counseling.

·       HECM counselors are required to review a client’s unique financial situation during a HECM counseling session. In order to conduct this review, a counselor must document a client’s budget based on financial information (e.g. income, assets, debts, monthly expenses) provided by the client.

o   It’s true that a majority of reverse mortgage recipients need a reverse mortgage. It is also true than less than 30% of counseling recipients have had any kind of financial or budget training. However, a reverse mortgage is a personal choice. The purpose of counseling is to make sure that the borrowers understand the loan, how it works, the costs and what the loan might look like in the future. I can understand this kind of review in the case of bankruptcy counseling where a client is attaining help for relief of debt. Will borrowers really want to share personal financial information with a counselor? What of the borrowers that attain reverse mortgages to help a child or enhance their lifestyle? Is income and budget information required to justify a personal decision? Reverse mortgage counseling is absolutely an excellent HUD and industry standard. It is imperative that a borrower fully understands any loan or financial product before attaining it. I believe that setting policies to help people make decisions that set them up for success is good, but I question requiring borrowers to provide personal information and personal reasons to a counselor before they can attain a loan. I think it would be a better policy to offer the option to the borrower to review their budget.

·       Counselors will have the authority to hold back counseling certificates if they feel the borrower fails to comprehend basic reverse mortgage concepts. Counselors will ask 10 questions from a list of 20 items published in the protocol and borrowers are required to answer at least 5 questions correctly to be eligible to receive a counseling certificate. If the borrowers fail the test, they are required to wait 7 days and then go through another counseling session.

o   I think this will be a good practice to incorporate into the counseling session. It is vital that borrowers understand their loan. If a lender has done their job properly a counseling session should simply be a quick review for the client. Reverse mortgages are not easy for everyone to understand. Even educated professionals are often challenged to understand the concept much less the intricacies of a reverse mortgage.

·       All counselors who wish to continue counseling borrowers will have to pass an exam demonstrating their knowledge of reverse mortgages.

o   This is an excellent requirement. The quality of counseling has increased dramatically over recent years. In the past borrowers have had to endure some counselors reading from a script. I personally have corrected counselors in some of the information that they have provided to borrowers. I would further have counselors trained in techniques in counseling. There have been instances in that a counselor’s accent or cadence of speech has inhibited a borrower’s ability to understand them.

I think certain portions of the new protocol are excellent. Testing of the counselors absolutely needs to be required. Counselors quizzing borrowers isn’t necessarily a bad thing. It can be done in such a way so as to document that borrowers understand reverse mortgages. I am however opposed to counselors asking for personal financial information which feels more like a violation of privacy. A borrower shouldn’t have to justify if and why they want a reverse mortgage. Reverse mortgages are a personal decision. Yes, it should be an informed one; however financial information is as personal as medical information. We have HIPAA laws protecting medical information, financial information should be the same.

Counsel for National Reverse Mortgage Association had this to say about reverse mortgage law making

According to James Milano, an attorney with the Washington, D.C. firm, Weiner Brodsky Sidman Kider, the urge to regulate may be reactionary. “State regulators may feel responsible for the subprime mortgage meltdown and don’t want to be fooled again,” he posited. Milano cites Washington State, California and Minnesota as having recently introduced bills and says “a couple of others may do something administratively.”

Further impetus may come from the fact that “government has a historically embedded role in reverse mortgages,” according to Peter Bell, president of the National Reverse Mortgage Lenders Association. That tendency could be played out in new state initiatives coalescing around “who can play - that is, loan-officer licensing, company approvals and product approvals,” he suggests.

Peter Bell said, “simple format that gives the senior or their family all the pertinent information they need, detail by detail. It’s there now,” he acknowledges, “but it’s buried in a thick sheaf of papers that you have to go digging through, and you’re at the mercy of your loan officer to figure them out.”

My Letter to my local Assembly woman re: AB329, Reverse Mortgage Elder Protection Act of 2009

Monday, March 09, 2009

 

Dear Assemblywoman Harkey,

 

I respect the proposal of AB 329 and the spirit of its creation.

My name is Angella Conrard. As a reverse mortgage originator of 4 years with a background in healthcare I can speak from experience. I am also the president of the National Aging in Place Council-Orange County and the director of the South Orange County National Care Council Chapter.

 

This bill if passed into law would be ineffective and only create hardship for seniors.

 

HUD already prohibits brokers from paying any of the counseling fees or referring to a specific agency. So the section stating that if they do pay the fee, they must notify the borrower of the conflict would be a violation of HUD regulations. We are also required to provide each client with a minimum of 5 counseling agencies. We are required to have our clients sign a disclosure upon the receipt of this list. With new agencies popping up continually this is an unrealistic provision. A more realistic provision is a list of 3 local counseling agencies and 3 referring agencies such as HUD or AARP.  The quality of counseling has increased significantly over the last few years. 99% of the time they provide good consumer counseling and it has proven to be an excellent consumer protection mechanism. A provision forbidding lenders to make any kind of donation to counseling agencies would be more effective.

The right of recession period of 30 days is excessive and would provide many problems for seniors. It is unfortunate but most seniors who attain reverse mortgages need them. In many cases you would be creating hardship with a 30 day right of recession period. We are not a society of planners. It is not uncommon for a senior to wait until they are in despite need of money before they attain a reverse mortgage. One third of reverse mortgages are done to pay for medical or home care.

 

I am currently working with a borrower who is 87 and has Lou Gerrigs disease. She needs her reverse mortgage to be able to continue to pay for her 24 hour caregiver.  Lenders will not fund a loan or release proceeds until the right of recession period is completed. The average completion time for a reverse mortgage from application is 30-45 days. She is just beyond 30 days from application date and has run out of money to pay her caregiver. VA and state benefits take over 6 months to attain. My client is just one of many who are doing the best they can to take care of themselves but who would be side swiped by such a law.

 

Many seniors whom I talk to got caught up in the refinance boom and no longer qualify for a reverse mortgage because they do not have enough equity, however with the new home purchase reverse mortgage product, they can often sell their home and retain enough equity to downsize so they can attain a more manageable home. They can move closer to children so they can have the support they need as they age. This bill would make home purchases with reverse mortgages impossible. No seller is going to consider selling to a buyer with financing of a reverse mortgage with a 30 day recession period. Such a recession period would not only inhibit the growth of the secondary market which eventually will create an environment to offer more products, but more seriously, lenders would not release funds until the right of recession is complete. This delays seniors from being able to pay for caregivers get relief them from burdensome mortgage payments, delays their ability to pay for medication and property taxes. You will hurt seniors with this bill.

 

In my opinion, a professional designation to qualify loan originators to provide reverse mortgages would be much more affective. The National Reverse Mortgage Lenders Association (NRMLA) has started the process to create such a designation with continuing education requirements. I agree, in that the originators need to be educated and be held to the highest ethics and levels of integrity, but do it by the educational requirements of the messenger not with legislation that will hurt seniors and the quality of their lives. I can assure you, I can recite many stories similar to this as other reverse mortgage originators can. I urge you to work with NRMLA to discuss this bill. It would be catastrophic for many people. NRMLA needs to complete the designation requirements and states need to adopt this as a requirement to originate reverse mortgages. It would require loan officers to take continuing education and ethics classes on a annual basis.

 

PLEASE DO NOT SUPPORT this bill. Contact Peter Bell, president of NRMLA 202-939-1741. I assure you this industry overall is dedicated to helping and protecting seniors.

 

Kind regards,

Angella Conrard

Reverse Mortgage Advisor

Stimulus Bill Sec 1204 Reverse Mortgage Language

SEC. 1204. FHA REVERSE MORTGAGE LOAN LIMITS FOR 2009.

For mortgages for which the mortgagee issues credit approval for the borrower during calendar year 2009, the second sentence of section 255(g) of the National Housing Act (12 U.S.C. 1715z-20(g)) shall be considered to require that in no case may the benefits of insurance under such section 255 exceed 150 percent of the maximum dollar amount in effect under the sixth sentence of section 305(a)(2) of the Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1454(a)(2)).

Stimulus Bill compromise Includes Higher Reverse Mortgage Loan Limits

The Senate passed its version of the economic stimulus bill . The U.S. House & Senate conferenced to work out compromises for the stimulus package.

The committee retained the House language which adjusts the maximum claim limit for Home Equity Conversion Mortgages (HECM). This language adjusts the maximum limit for HECMs to 150% of the Freddie mac limit which would bring it up to $625,500. This increase is only for the balance of 2009.

The House approved the plan yesterday and the Senate was expected to also approve the changes.

President Obama must sign the bill for it to become law. Once it is signed much must be done to implement law. HUD then issues a "Mortgagee Letter" which allows lenders to offer the higher limits.

The thought comes to mind, will the government offer these higher limits beyond 2009. HUD's concern of offering higher limits in the past was that it would inhibit the private sector in offering reverse mortgages. When we did have jumbo reverse mortgages, none of them made sense for homes at values of $625,500 anyway, so why not help older homeowner help themselves by keeping the higher limits beyond 2009.