In a recent blog post we discussed recent changes to FHA Reverse Mortgage loan policies. Here are some explanations of some of those policy changes and how they affect mortgage loan processing for FHA Home Equity Conversion Mortgages, also known as reverse mortgages.
Evidence of Current Hazard Insurance
FHA reverse mortgages require the lender to verify the existence of hazard insurance where required and to make sure that insurance is current, not delinquent. According to the 2018 HECM policy updates, participating FHA lenders who issue reverse mortgages are now allowed to accept alternative documentation of hazard insurance:
“In lieu of a current hazard insurance declaration page, HUD will accept a document from the hazard insurance provider (i.e., hazard insurance company underwriting the property and responsible for paying a claim) on its letterhead that contains the following information:
- Name of the insured;
- Address of insured property;
- Type of coverage;
- Insurance policy number;
- Insurance policy limits;
- Effective date of the insurance policy;
- Expiration date of the insurance policy;
- Name and contact information for the insurer; and
- Annual insurance premium
Proof Of Current Taxes Paid
FHA loan rules require HECM or reverse mortgage borrowers to remain current on property taxes and charges the lender with insuring this is so; what hasn’t been so clear in the past is what constituted “current” in the eyes of the FHA.
In other words, when are property taxes considered paid in full and NOT delinquent for purposes of reverse mortgage requirements?
According to the clarification published in the most recent (2018) FHA reverse mortgage policy, “Taxes are considered “current” for purposes of CT-22 review when taxes are paid prior to delinquency as defined by the local taxing authority”.
FHA loan rules now add that if there are tax bills delinquent “before recordation of the assignment” must be paid by the borrower as a condition of approving the loan.
Evidence of Completion of Required Repairs
In cases where there are repairs or corrections required as a condition of reverse mortgage loan approval, the revised 2018 FHA reverse mortgage guidelines state that the lender is now required to submit evidence that the repairs have been completed, which may require supporting documentation such as receipts for services rendered, expense lists, etc.
Reverse Mortgage Loan Rules For Mobile Homes
Revised FHA reverse mortgage policy now states that the lender must insure that any mobile home used to secure an FHA reverse mortgage or Home Equity Conversion Mortgage (same loan, different name) must now include evidence that the property is taxable or legally classifiable as “real property” according to the laws of the state where the property is located. Documentation from the state taxing authority may be required.