HUD Addresses Reverse Mortgage Financial Assessment Complexities

The Department of Housing and Urban Development (HUD) hosted a training webinar last week to help reverse mortgage lenders overcome confusion and intricacies of doing business under the Financial Assessment.

Clocking in at just under two hours, the webcast (which can be accessed here) provided an in-depth discussion on originating and underwriting Home Equity Conversion Mortgages (HECMs) in compliance with the guidelines set forth via the Financial Assessment (FA).

“As we all know, the implementation of the Financial Assessment and Property Charge Set-Aside requirements have a significant impact on the origination process,” said Phillip Caulfield, housing policy analyst for HUD’s Office of Single Family Program Development. “While mortgagees have put a lot of effort into operationalizing new policy, question and feedback we’ve received indicates the need for additional training.”

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Particularly, HUD has been hearing confusion with regard to evaluating a borrower’s record in paying property charges, especially in the event that a mortgagor has multiple properties, said Dorian Humphrey, chief – Insuring and Office Underwriting Branch at the Atlanta Homeownership Center.

“When evaluating credit history and property charge payment history, analysis is not limited to principal residence only,” Humphrey said, adding that if a person has multiple properties, lenders must document their paying of property charges on all of them.

The HUD webinar also served to dispel rumors regarding the ability to enter a negative value for residual income in FHA Connection.

“We are hearing rumors that our action in this regard represents a major change in our policy,” Humphrey said. “FHA is permitting the entry of a negative number for residual income only under individual circumstances. This cannot be construed to think that negative residual income is ok now.”

The training session also provided a review of the FA basis, including calculating residual income, compensating factors, making sustainable HECM decisions, formulas for set-aside calculations as well as case studies.

Interactive scenarios were also included in the training session, enabling viewers to judge whether or not certain HECMs should be approved, after taking into account the specific circumstances of borrowers such as their residual income, extenuating circumstances, credit and property charge history.

Through August 31, 2015, HUD issued 23,246 HECM case numbers that are subject to the Financial Assessment requirements, according to data provided during the webinar. Of these case numbers, 3,918 loans have closed and 1,749 have been endorsed.

“As more HECMs are endorsed and we begin to review actual loan files, we’ll have the opportunity to more thoroughly assess the documentation and mortgagee support for loan decisions,” Caulfield said.

Written by Jason Oliva

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