September 17, 2013
Recently the FHA issued new rules and instructions to the lender that affect how FHA Reverse Mortgages or Home Equity Conversion Mortgages are processed. According to FHA Mortgagee Letter 2013-28, effective for all HECM case numbers assigned on or after January 13, 2014, the lender, “must perform a financial assessment of all prospective mortgagors on all HECM transaction types, i.e., traditional, refinance, and purchase.”
What does that mean for the HECM loan applicant? For starters, when you apply for an FHA reverse mortgage or HECM, the lender is charged with doing the following things with your application data according to Mortgagee Letter 2013-28:
- performing the credit history analysis.
- performing the cash flow/residual income analysis;
- documenting and verifying credit, income, assets and property charges
- evaluating extenuating circumstances and compensating factors
- evaluating the results of the financial assessment in determining eligibility for the HECM
- determining if funding sources for property charges from HECM proceeds will be required; and
-
completing a HECM financial assessment worksheet.
FHA loan rules explain the reasons for the credit check, stating, “The purpose of the credit history analysis is to determine if the mortgagor has demonstrated responsible management of debt, finances and homeownership obligations. The mortgagee must analyze the mortgagor’s credit history and loan application to identify debts/obligations that must be included in the residual income analysis and to determine if the mortgagor has:
- delinquent Federal debt;
- any unpaid liens against the subject property resulting from a State or court-ordered judgments;
- a satisfactory payment history on revolving credit, installment accounts, and mortgages; and
- a satisfactory history of timely payment of property charges”
When it comes to delinquent or unpaid federal debt, FHA loan rules for HECM loans now state, ”
A Federal judgment or delinquent Federal debt must be paid-in-full or a satisfactory repayment plan between the prospective mortgagor and the Federal agency owed must be in place prior to closing of the HECM. Any delinquent Federal debts or liens against the real estate must not be in excess of the mortgagor’s net principal limit, unless the mortgagor has a separate source of funds from which to draw and pay those debts. Liens against the real estate resulting from delinquent Federal debt must be satisfied or resolved.”
State and local loans have different instructions for the lender. “FHA does not require the HECM mortgagor to satisfy an unpaid State or local court-ordered judgment prior to or at closing, although the mortgagee may impose such a requirement. Liens against the real estate resulting from outstanding state or local court judgments must be satisfied and removed or subordinated to the HECM first and second liens at closing.”
Do you have questions about FHA Reverse Mortgage (HECM) loans? Ask us in the comments section.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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