FHA HECM Broker/Correspondent Manual

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1 James B. Nutter & Company America s First FHA Reverse Mortgage Lender FHA HECM Broker/Correspondent Manual Fifteenth Edition, April 2012 James B. Nutter & Company 4153 Broadway Kansas City, MO (800)

2 Now that I have experienced JB Nutter I will NEVER send a reverse mortgage anywhere else! I have never seen such incredible service. --Broker, San Diego, California, March We can t thank the Nutter team enough your service is always exceptional You have an incredible team and we are privileged to work with such great people. --Broker, Fall River, Massachusetts, April I can tell you with confidence you have something very special at JB Nutter. Dealing with your teams [has] been a breath of fresh air, combining speed, professionalism, product knowledge and a we are here to help attitude. --Correspondent Lender, Irvine, California, March I just have to say that is has been a PLEASURE working with EVERYONE in your company. The turnaround times are UNBELIEVABLE? The [underwriters] and closers are ALL AWESOME!... If I could send EVERY loan that comes through my doors to your company, I would. I will recommend your company to everyone I speak to! --Broker, Cranston, Rhode Island, March I really like you folks at JB Nutter, as there is a personal and friendly touch unlike any other lender we ve used. I hope we will have many prosperous years partnering together. --Broker, Greenville, Michigan, March 2008

3 Table of Contents Chapter 1 Overviews 1.1 An Introduction from James B. Nutter, Sr Company Milestones A Word About Ethics Sales & Marketing Tips Ancillary Products Fixed Rate HECMs HECM to HECM Refinances HECM for Purchase General Comment on State-Specific Rules... 6 Chapter 2 Contact Information 2.1 Processing Underwriting Closing Account Executives Correspondent Liaisons Shipping Customer Service Reverse Mortgage Resources... 7 Chapter 3 Application 3.1 Application Process Program Description Eligibility Requirements Loan Amount / Principal Limit Payment Plans Interest Rate Mandatory Counseling Application Documents Closing Costs Closing Cost Glossary Re-Disclosure Chapter 4 Processing Basic Processing Checklist Ordering FHA Case Number or Case Transfers Ordering Appraisal Appraisal Requirements Condominiums, PUDs & Manufactured Homes Title Insurance... 24

4 Table of Contents continued Chapter 5 Underwriting 5.1 Underwriting Philosophy and Submission Instructions Broker/Correspondent Loans Stacking Order for Credit Pkg Social Security Proof Required Repairs Taxes & Homeowners Insurance Powers of Attorney, Conservators, Guardianships Trusts Flood Insurance Second Mortgages / Subordinations Ineligible Borrowers Leaseholds Chapter 6 Closing 6.1 Brokered Loans Pre-Closing Procedures Brokered Loans Post-Closing Procedures Correspondent Loans Pre-Closing Procedures Correspondent Loans Post-Closing Procedures Correspondent Loans Stacking Order for Closing Package Loan Buybacks 45/180 Rule for Uninsured Loans Chapter 7 Servicing Chapter 8 Registration 8.1 Brokered Loans Correspondent Loans Extensions Important Tips Chapter 9 State-Specific Rules 9.1 Maryland Massachusetts Minnesota North Carolina Chapter 10 Appendices 10.1 Fair Lending Statement Disclaimers Forms... 45

5 Chapter 1 Overviews 1.1 An Introduction from James B. Nutter, Sr. We owe an enormous debt to the senior citizens of our country. They ve raised our families, fought our wars, put a man on the moon, cured diseases and moved us into the Computer Age. Unfortunately, life has increasingly become more difficult for our seniors. While many of our seniors are living longer and leading more productive lives, their financial resources aren t keeping pace. More and more seniors are feeling the pinch of higher living expenses and the skyrocketing cost of health care. Consequently, many seniors are forced to make the painful choice to sell their home or dramatically reduce their quality of life. Either way, it s a lose-lose situation. For these reasons, I believe that the FHA Reverse Mortgage Program for Seniors, or Home Equity Conversion Mortgage (HECM), represents the most important home loan program developed in the past 20 years. No loan program so richly benefits our seniors as a Reverse Mortgage. And no lender is more experienced with Reverse Mortgages than James B. Nutter & Company. We originated the first FHA HECM Reverse Mortgage in the nation in 1989, for Ms. Marjorie Mason of Fairway, Kansas. We truly are America s first FHA Reverse Mortgage Lender. I m glad that you ve decided to join with James B. Nutter & Company in offering this wonderful program to our seniors. We want you to be successful and hope that our FHA HECM Broker/ Correspondent Manual will help you and your staff. James B. Nutter & Company s FHA Reverse Mortgage Program provides a lucrative income opportunity for those Broker/Correspondents who are willing to commit the necessary time and resources to be successful at Reverse Mortgages. At the same time, we must always remember to treat our seniors the way they deserve to be treated with dignity and respect. Welcome aboard! (2)

6 1.2 Company Milestones Headquartered in Kansas City, Missouri, James B. Nutter & Company (JBN) has been originating mortgages nationwide since Throughout the years, we ve achieved some major milestones: In the 1950s, we were among the first lenders in Kansas City to close an FHA mortgage for an African-American family. We were the first lender in Kansas City to accept the income of a woman for the purposes of qualifying a married couple. In 1989, we were among the first firms selected to pilot the FHA HECM Reverse Mortgage program. In 1989, we closed the first FHA HECM Reverse Mortgage in the nation for Ms. Marjorie Mason of Fairway, Kansas. In 1995, we were one of the first 10 lenders in the country selected to sign HUD s Fair Lending/Best Practices Agreement. In 1996, we were designated a Preferred Reverse Mortgage Lender by the National Center for Home Equity Conversion. In 2003, we were ranked #3 in the nation in FHA Streamline Refinance loan origination. Our delinquency and foreclosure rates are consistently below the national averages. 1.3 A Word about Ethics Our reputation is extremely important to us, as it undoubtedly is to your firm. At all times remember that the FHA HECM Reverse Mortgage Program is an extremely sensitive program. As loan originators, we are here to help our senior citizens. No lender wants to be seen as exploiting or taking advantage of our seniors. All it would take to destroy this program is for one abusive lender to skirt the rules and/or deceive a senior citizen and end up as the lead story on the evening news. The resulting damage to that senior s livelihood, as well as the HECM program itself, would be incalculable. Please monitor your Reverse Mortgage operations closely. We ask that you please emphasize the following ethical concepts to your staff on an ongoing basis: Learn the program. Loan Originators must know as much about the Reverse Mortgage program as possible. This program is not for every senior. Know your disclosures. Explain the program. There is more of an educative component to the Reverse Mortgage process than forward mortgage programs. Take the time to fully explain the program to the senior. Encourage family and/or advisers to participate. Whether it s one of their children, their estate attorney or their financial planner, make sure the senior understands that these individuals are welcome to participate in the process. Don t offer legal or financial advice. Let the client s attorney or financial planner answer specific legal or financial questions. (3)

7 Treat the senior with dignity. It sounds obvious, but don t overly pressure or intimidate a client. Recognize that the sales cycle for a reverse mortgage is much longer than a normal mortgage. Be patient. Anti-Steering Provision. James B. Nutter & Company recognizes that conditions in the secondary market may limit or prevent a Broker/Correspondent s ability to offer certain HECM products from time to time. However, as long as the ability for Broker/Correspondents to offer multiple HECM product offerings exists (e.g. HECM ARM, Fixed Rate HECM, HECM Saver), JBN requires that Broker/Correspondents review the totality of product offerings with the senior, allowing him or her to determine the optimal HECM product. This anti-steering requirement extends to both oral and written communications with the senior client. Failure to do so could be grounds for suspension or termination of your company s broker/correspondent relationship with James B. Nutter & Company, including the repurchase of any affected loans. 1.4 Sales & Marketing Tips By no means is this an exhaustive list, but here is a Top 10 list of basic tips that might help you build your Reverse Mortgage program: 1. Above all, this is a lifestyle program. You are selling a product that can literally change a senior s life. 2. Remember your audience. Not only are you marketing to the senior, you are also marketing to their children. 3. Be patient and keep it simple. Many seniors know very little about Reverse Mortgages. 4. Follow-up is critical. The sales cycle for Reverse Mortgages is slow. 5. Make sure any written correspondence is easy to read. A large number of seniors suffer from some sort of vision problem. 6. Utilize alternative marketing opportunities. Churches, senior groups and community centers, etc, can provide fruitful marketing avenues. 7. Create your own marketing materials. This can be done on your own or you can purchase brochures with your logo on them at 8. More and more seniors are using the Internet. If done correctly, Reverse Mortgage leads can be generated on the Internet. 9. Keep your Reverse Mortgage operations separate from your forward mortgage operations. 10. Seniors are an excellent source for referrals. Adjust accordingly. 1.5 Ancillary Products Loan originators may not participate in financial or insurance activities nor may they employ any party that participates in financial or insurance activities. Individuals participating in the origination of a HECM loan shall have no involvement with, or incentive to provide the borrower with, any other financial or insurance product. Neither mortgagees nor any other party may require borrowers to purchase insurance, annuities or other additional products as a (4)

8 requirement for, or a condition of, eligibility for HECM insurance. See Mortgagee Letter for additional details. 1.6 Fixed Rate HECMs The JBN Fixed Rate HECM is designed for those risk-averse borrowers who prefer the longterm security of a fixed rate reverse mortgage with maximum loan proceeds. As this loan program has significant differences from Adjustable Rate HECMs (see list below), we emphasize the need to keep the borrower fully informed at all times. Bear in mind the following differences from Adjustable Rate HECMs: Fixed rate reverse mortgage loans are not available in the state of Illinois. The rate is locked when the loan is registered which generally 24 hours prior to closing (depending on market conditions at the time of registration). The rate that is locked is whatever is available in Web Ibis at the time the loan is registered. What does this mean to you? When you call your borrower to schedule the closing date, you can quote the interest rate locked in at loan registration and not have any surprises for the borrower at the closing table unless there is a significant delay in the closing of the loan. Fixed Rate Lock Policy. The borrower must be informed that not only can the interest rate change between the application date and the date that closing is scheduled, but also that if interest rates change, the amount of their loan proceeds can change as well. Mortgage Disclosure Improvement Act of The MDIA, which went into effect July 30, 2009, has impacted the timeline for providing initial disclosures on and closing fixed rate reverse mortgages. Initial disclosure must be made at application (i.e. signing of the 1009) or within three (3) business days of application. Placing the initial disclosures in the mail within three business days of application is sufficient to comply with this rule. The borrower must wait to close until the seventh (7th) business day after the initial TIL has been delivered or mailed to the borrower. The lender cannot collect upfront fees until the next business day after the borrower has received the initial disclosures. The only exception is the collection of a credit report fee. Re-disclosure invokes a three-day waiting period from the date the borrower receives the redisclosures. Re-disclosure of the TIL is required if the APR is determined at closing to vary more than.125% from the APR on the initial TIL. An increase in closing costs or a change in the monthly service fee can trigger re-disclosure. Federal Reserve s Broker Compensation Rules (effective April 1, 2011). Applying to fixed rate HECM loans only, brokers choose either borrower- and lender-paid compensation on a loan-by-loan basis. The Ibis software will calculate both so that you can make an informed choice. The type of compensation you choose must be disclosed on the initial binding Good (5)

9 Faith Estimate. RESPA rules on change of circumstance will govern your ability to change the selected type of compensation. See FHA Mortgagee Letter for more information on Fixed Rate HECMs HECM to HECM Refinances In order to determine if an existing HECM borrower is a good candidate for a HECM-to-HECM refinance, there is certain basic information the Loan Originator must obtain on the existing HECM loan and it is the Maximum Claim Amount, Current Principal Limit and Current Loan Balance. This information can be obtained from the existing HECM s servicer in the form of a Refinance/Servicer Worksheet or from the borrower s most recently monthly statement. Armed with this information, the following series of questions will assist in the process of determining eligibility: Seasoning Test. Is the existing HECM loan more than 12 months old (or 6 months old if application for the proposed HECM Refinance was taken before February 1, 2012)? If the existing HECM loan is presently serviced by JBN, is it more than 18 months old? If yes, then proceed to the Delinquency test. Delinquency Test. Is the existing HECM loan in good standing and devoid of any delinquency for repairs or property charges? If yes, then proceed to the Maximum Claim Amount test. If no, please see Curing Delinquencies in this chapter. Maximum Claim Amount Test. Is the Maximum Claim Amount on the proposed HECM Refinance anticipated to be greater than the Maximum Claim Amount on the existing HECM? An Automated Valuation Model (or AVM) must be run to support the appraised value used by the Loan Originator (see Counseling in this section for additional details). If yes, then proceed to the Benefit to the Borrower test. Benefit to the Borrower Test. It must be demonstrated that the proposed HECM Refinance is of benefit to the borrower. 1. Are funds available to the borrower on the proposed HECM Refinance (after closing costs and liens) greater than funds remaining on the existing HECM (i.e. LOC and/or monthly payments)? AND 2. With regard to the rate at which the proposed HECM Refinance will accrue interest (including Annual MIP): a. Is it higher than the existing HECM? If so, then the increase in Principal Limit from the existing HECM s Current Principal Limit to the proposed HECM s Principal Limit must be at least 5 times the total of ALL costs associated with the proposed HECM (irrespective of any lender-paid closing costs). OR b. Is it lower than or equal to the existing HECM? If so, then the increase in Principal Limit from the existing HECM s Current Principal Limit to the proposed HECM s Principal Limit must be at least 5 times the total of borrower-paid closing costs (so you can deduct lender-paid closing costs). (6)

10 If the Loan Originator can answer yes to all of the above questions and the borrower meets BOTH of the Benefit to the Borrower tests, then the Loan Originator may proceed with taking an application. Letter of Explanation. The question remains: what happens to HECM borrowers who pass the Seasoning, Delinquency, and Maximum Claim Amount tests but fail to meet the Benefit to the Borrower test outlined above? Well, they will be reviewed on a case-by-case basis. But, generally speaking, only those that refinance so as to add a new spouse or add a spouse that was ineligible at the time the existing HECM loan closed will be eligible for a HECM Refinance. JBN will require a signed and dated Letter of Explanation from the borrower indicating why he or she believes the HECM Refinance is of benefit. Please contact your Account Executive for additional details. Anti-Churning Disclosure. An Anti-Churning Disclosure must be supplied to the borrower within three days of application and at the time of any re-disclosure. The purpose of this form is to explain to the borrower the cost and benefit of refinancing their existing HECM loan. Be sure to reference the Refinance/Servicer Worksheet from the current servicing lender for the following: FHA Case Number If one is not listed, it is a good indication that the current reverse mortgage loan is not a HECM. Loan Type If loan type states Home Keeper, Cash Acct, etc. then the current loan is not a HECM. Maximum Claim Amount If the Maximum Claim Amount on the existing reverse mortgage is higher than the current HECM Lending Limit for the property, it is a good indication the current reverse mortgage is not a HECM. Current Principal Limit This number increases gradually after closing. Be sure to use what the Principal Limit has grown to in your comparison, not what it was at the time of closing. This number will always be higher than the current balance. Current Loan Balance. When the current reverse mortgage loan is not an FHA-insured HECM, then the new reverse mortgage is not considered a HECM-to-HECM refinance. Therefore, the borrower will have to be counseled again and the loan will not receive reduced Mortgage Insurance Premium. Counseling. For HECM-to-HECM refinance transactions, borrowers can waive and opt out of the HECM counseling requirement only if all three of the conditions listed in Mortgagee Letter are met. The borrower has received the required HECM Anti-Churning Disclosure form; The increase in the borrower s Principal Limit exceeds the total cost of the HECM refinance by an amount equal to five (5) times the cost of the transaction (Block #1 on Anti-Churning Disclosure Form); and The time between the closing on the existing HECM and the application for refinancing does not exceed five years. AVM. Effective immediately, an AVM must be run prior to application to support the appraised value used by the Loan Originator. This is necessary primarily to support waiver of counseling (7)

11 based upon the presumption of a 5:1 ratio. This AVM does not take the place of an FHA appraisal. Curing Delinquencies. The existing HECM loan must be in good standing at the time of closing on the HECM Refinance so as to be eligible for FHA insurance. This includes any HECM loans assigned to HUD. So any delinquency on the existing HECM loan for repairs must be cured prior to closing. If, however, the existing HECM loan is delinquent for property charges, please contact an Account Executive or Correspondent Liaison before proceeding with an application. State-Level Tangible Net Benefit Laws. State regulation of mortgage lending has increased dramatically, especially in the area of refinancing. Some states have enacted tangible net benefit laws to protect borrowers from predatory refinance activity involving excessive closing costs, loan churning and equity stripping. These laws could potentially be applied to reverse mortgage refinancing, particularly for refinances that increase the borrower s margin and/or provide minimal cash benefits to the borrower. As such, JBN will not, under any circumstances, accept HECM-to-HECM refinances that fail to meet the 5:1 ratio in the following states: Arkansas Maryland Georgia Virginia Illinois West Virginia 1.8 HECM for Purchase The HECM for Purchase program allows eligible borrowers to preserve capital by using reverse mortgage proceeds toward the purchase of a new principal residence. The lesser of the sales price, appraised value, or HECM Lending Limit will be used to establish the Maximum Claim Amount and determine the borrower s Principal Limit. Additional documents required on a HECM for Purchase loan are: Real Estate Certification Sales contract Non-borrowing spouse form, if applicable Proof of funds Any other documents listed on our HECM for Purchase stacking orders See Mortgagee Letter for guidelines on property flipping, approved sources of funds, repairs, etc. and Chapter 4 of this HECM manual for additional processing requirements. Restrictions. JBN does not accept HECM for Purchase loans with a non-borrowing spouse. Please contact an Account Executive if you have any questions on this policy. Also, HECM for Purchase is not available in Puerto Rico and is prohibited by state law in Texas. (8)

12 1.9 General Comments on State-Specific Rules Many states have passed legislation that alters the guidance provided in this HECM Broker/Correspondent Manual. Chapter 9, although not all-inclusive, contains some statespecific rules that may affect you. Chapter 2 Contact Information 2.1 Processing (800) Name Extension Fax Number Belinda Spencer Jenny L Etoile Rose Estevez Underwriting (800) Name Extension Fax Number Tera Guy, VP of Operations Linda Williams, U/W Sup Brittany Daniels, Admin Asst Gina Riddle Heather Williams-condo approval Jenny L Etoile Terry Wallace-Chambers Closing (800) Name Extension Fax Number Diane Hendrix, Closing Mgr Toni Conrad, Closer Shari Patrick, Disbursing Emma Wright, Disbursing Account Executives (800) Name Extension Fax Number Paul Madson, Vice President Sarah Sawyer, Vice President Correspondent Liaisons (800) Name Extension Fax Number Raquel Guynn, Ibis Support Sup (9)

13 2.6 Shipping (800) Name Extension Fax Number Kevin Williams Chuck Couch Cindy Springer Deb Frazier Teresa Ryan Customer Service (800) Name Extension Fax Number Charlotte Lockhart Kathy Sherbo Joann Love Repairs Mandi Lero Credit Line Draws Insurance Taxes Reverse Mortgage Resources National Reverse Mortgage Lenders Association (NRMLA) (lenders) (consumers) Association for the Advancement of Retired Persons (AARP) National Council on the Aging (NCOA) HECM Counselor Lists, HECM Handbook and Mortgagee Letters HECM Counseling Questions Philadelphia John Olmstead (802) ext HECM Counseling Questions (cont d) Atlanta Cleotra Lofton (615) Denver Phillip Watson (800) ext.1970 Santa Ana Rhonda Rivera (888) ext.3210 (10)

14 HECM Processing & Underwriting Questions Philadelphia Anthony Sexauer (800) ext Atlanta Jane Hudgins (888) ext Denver Linda Luckey (800) ext Santa Ana Daniel Mooney (888) ext FHA Connection/HECM System Issues Ernest Peoples (202) ext Robert Gould (202) ext HECM Policy Questions Erica Jessup, HECM Program Specialist (202) ext FHA Mortgagee Letters (11)

15 Chapter 3 Application 3.1 Application Process The HECM Reverse Mortgage application process as proscribed by HUD is as follows: 1. Loan Originator visits with borrower, explains program options, provides Counseling Referral List (see Section 3.7 for details). JBN requires the Loan Originator to review the totality of product offerings (e.g. HECM ARM, Fixed Rate HECM, HECM Saver) with the senior, allowing him or her to determine the optimal HECM product. This anti-steering requirement extends to both oral and written communications with the senior client. 2. Borrower attends mandatory counseling, receives certificate, signs and dates the certificate, provides it to the Loan Originator. See Section 3.7 for details. 3. Loan Originator obtains original signed Counseling Certificate, proof of Date of Birth and Social Security Number, and a utility bill to verify occupancy (electric, gas, water, or sewer). 4. Loan Originator takes application in Broker/Correspondent s name and locks in Expected Rate (if applicable). a. Adjustable Rate applicants sign the Principal Limit Lock Disclosure to lock the Expected Rate (determined at the time of application) for 120 days with a float-down. The floatdown allows for recalculation of the Principal Limit at closing if the Expected Rate results in a greater financial benefit to the borrower. b. Expected Rates on Fixed Rate HECMs float until closing. See Section 6.1 for details on locking Fixed Rate HECMs. c. No Lock-In Fees. Broker/Correspondents are not permitted to charge a fee for locking in the HECM Expected Rate or for the float-down feature. NOTE: HUD guidelines ALLOW for an application package to be generated and signed by the borrower prior to the borrower receiving HECM counseling, but state guidelines may prohibit this practice. Minnesota is one such state. It is the responsibility of each Loan Originator to comply with all applicable state and federal laws. 5. FHA Case Number is obtained and an appraisal is ordered. See Chapter 4 for details. 6. Loan is processed and underwritten. 7. Loan is closed. Borrower receives first monthly check the 1st of the following month. The following information is provided to assist you in complying with other federal regulations affecting HECM loans. Good Faith Estimate: o Issued by the Loan Originator no later than three business days after the Loan Originator receives an application or information sufficient to complete an application. o Brokers issuing GFEs on Fixed Rate HECM loans must choose either borrower- or lender-paid compensation and indicate the selected type of compensation on the initial GFE. RESPA rules on change of circumstance will govern the ability to change the selected type of compensation. (12)

16 Truth-In-Lending o Applies to Fixed Rate HECM loans only o Issued by the Loan Originator no later than three business days after the Loan Originator receives an application or information sufficient to complete an application. o Consummation of the loan may occur on or after the seventh business day after the delivery or mailing of the TIL. Borrowers applying for Adjustable Rate HECMs and later switching to Fixed Rate HECMs are subject to the seven-business-day waiting period. Brokers will be considered compliant with safe harbor provisions contained within the Federal Reserve s broker compensation rules by disclosing to the borrower all available reverse mortgage product options. (Note: presently, that involves a comparison of four products.). See Chapter 9 for special state-specific disclosure rules Program Description Reverse mortgages are designed to enable elderly homeowners to convert the equity in their homes to monthly payments, lump sum payments and/or lines of credit. Loan proceeds for a reverse mortgage are paid out according to a payment plan selected by the borrower. Unlike a traditional "forward" residential mortgage, which is repaid in periodic payments, a reverse mortgage is repaid in one payment, after the death of the borrower, or when the borrower no longer occupies the property as a principal residence (see Subpoint F, below). The HECM is a "non-recourse" loan. This means that the HECM borrower (or his/her estate) will never owe more than the loan balance or the value of the property, whichever is less and no assets other than the home must be used to repay the debt (see Subpoint E, below). The mortgage proceeds paid by the lender and/or HUD will be secured by first and second mortgages on the property. These liens will allow the lender and HUD to recover any losses up to the value of the property when the borrower dies or no longer maintains the property as a principal residence. Recovery of mortgage proceeds. The borrower may occupy the property until the mortgage becomes due and payable. A mortgage will become due and payable when the borrower dies, the property is no longer the borrower's principal residence, the borrower does not occupy the property for 12 consecutive months for health reasons, or the borrower violates the mortgage covenants. o When the mortgage becomes due and payable, the property can be sold or refinanced by the borrower or the borrower's estate to pay off the outstanding balance on the mortgage. o Since a HECM is a non-recourse loan, the lender's recovery from the borrower will be limited to the value of the home. There will be no deficiency judgment taken against the (13)

17 borrower or the estate because there is no personal liability for payment of the loan balance. F. There is no prepayment penalty associated with the HECM reverse mortgage. 3.3 Eligibility Requirements Age. Eligible borrowers are persons 62 years of age or older. All borrowers on the mortgage must be 62 or older. Owner-Occupancy. The property must be the principal residence of each borrower. Each borrower must have owned and occupied the property for a minimum of twelve months. Married spouses or other co-borrowers may be living apart because one of them is temporarily or permanently in a health care facility; however at least one borrower must be living in the home. Borrowers will be asked to certify their occupancy on an annual basis. Property Types. Eligible properties are existing single-family dwellings (1-4 units), condominiums, PUD s, and manufactured homes. There are some restrictions on eligibility requirements for the Fixed Rate reverse mortgage product. Existing Liens. Eligible borrowers should own their homes either free and clear or with liens not exceeding the Principal Limit. Seasoning on Title. On refinance transactions, JBN requires that the borrower own and occupy the property for a minimum of twelve (12) months. On refinances not meeting this requirement, the borrower can furnish HUD-1's showing money infused to purchase the property. Loans will be reviewed for acceptance on a case by case basis. 3.4 Loan Amount / Principal Limit Utilizing your software is by far the easiest way to figure a HECM Principal Limit. However, the formula for calculating a HECM Principal Limit can be summarized in four steps: Determine the Maximum Claim Amount. On refinance transactions, this is the lesser of the appraised value of the house or the maximum FHA HECM loan limit that HUD will insure in your area for single family residences. On purchase transactions, this is the lesser of the purchase price, appraised value, or the maximum FHA HECM loan limit. Adjust for the age of the youngest borrower. The younger the senior, the less money the senior is eligible to borrow. Adjust for current interest rates by determining the Expected Rate. Generally speaking, the higher the Expected Rate, the less money the senior is eligible to borrow. o For Adjustable Rate HECMs, it is the sum of the lender's margin and the 10 Year Swap Rate. o For Fixed Rate HECMs, it is disclosed as one rate that already includes the lender s margin. (14)

18 By determining these numbers, and assuming the borrower lives to the age of 100 voila! The Principal Limit is determined. Generally speaking, a senior can immediately access 50%-65% of the Maximum Claim Amount Payment Plans The borrower that chooses an Adjustable Rate HECM has the choice of receiving HECM proceeds through six basic payment plans. The borrower that chooses a Fixed Rate HECM must take all proceeds as a lump sum at closing. Some payment plans can be adjusted during the loan term: 1. Lump Sum - Borrowers receives a lump sum check for all or a portion of the loan proceeds at closing. The Fixed Rate HECM requires that the borrower receive all proceeds at closing. 2. Monthly Term - Borrowers receive equal monthly payments from the lender for a fixed period of months selected by the borrower. 3. Monthly Lifetime (Tenure) With this payment plan, borrowers receive equal monthly payments from the lender for as long as the borrower lives and continues to occupy the property as a principal residence. 4. Line of Credit - With this payment plan, borrowers receive mortgage proceeds in the form of unscheduled payments or in installments, at times and in amounts of the borrower's choosing, until the line of credit is exhausted. 5. Modified Lifetime (Tenure) With this payment plan, borrowers may combine lines of credit with lifetime monthly payments (as long as the property is occupied as the principal residence). In exchange for reduced monthly payments, borrowers set aside a specified amount of money for a line of credit upon which draws can be made until the line of credit is exhausted. 6. Modified Term With this payment plan, borrowers may combine lines of credit with monthly payments for a fixed period of months selected by the borrower. In exchange for reduced monthly payments, borrowers set aside a specified amount of money for a line of credit upon which draws can be made until the line of credit is exhausted. Remember that the FHA HECM is extremely flexible. 3.6 Interest Rate HECMs originated for JBN will either be monthly adjustable or fixed. The Monthly Adjustable HECM is by far the most popular option because the borrower usually receives more loan proceeds over the long run and has more flexible payment plans. For Monthly Adjustable HECMs: The mortgage interest rate is the sum of the lender's margin and the 1 Month LIBOR Rate (for LIBOR-based HECMs) Please refer to the Ibis software, a Correspondent Liaison or your Account Executive for available margins. (15)

19 The interest rate adjusts monthly and has no interim caps. Interest will accrue daily and be added to the outstanding balance monthly. The lifetime cap of the loan is 10% above the initial interest rate. For Fixed Rate HECMs: The interest rate is locked in at the time the loan is registered and is locked for a number of calendar days that are dependent upon market conditions at the time of registration. Interest will accrue daily and be added to the balance monthly. The rate is fixed for the life for the loan and will never adjust Mandatory Counseling Counseling will be provided by a HUD-approved housing counseling agency and will focus on the different types of home equity conversion mortgages available, the suitability of a home equity conversion mortgage for the borrower, and the alternatives to a home equity conversion mortgage. Please consult HUD Mortgagee Letter for additional information on HECM counseling for quitclaimed spouses, children, and those borrowers whose property is titled in a Trust Agreement. See Chapter 9 for state-specific counseling rules. A. Standard counseling procedures: 1. The Broker/Correspondent must provide the borrower with a list of at least twelve (12) HUD-approved counseling agencies, seven of which are listed below. The remaining five must in the local area and/or state of the prospective HECM borrower. At least one counseling agency must be in close enough proximity to the borrower to allow for faceto-face counseling. (See Mortgagee Letter for additional information.) o National Foundation for Credit Counseling, Inc. (866) o Money Management International (877) o Consumer Credit Counseling Service of Greater Atlanta (877) o National Council on Aging (800) o ClearPoint Financial Solutions, Inc. (877) o Springboard Non-Profit Consumer Credit Management (800) o Neighborhood Reinvestment Corporation (888) The Ibis Software generates a fully HUD-compliant referral list. To research your own, go to: https://entp.hud.gov/idapp/html/hecm_agency_look.cfm. Telephone counseling is permitted. 3. The Broker/Correspondent is prohibited from scheduling the counseling appointment or paying the counseling fee. See Mortgagee Letter for details. 4. Borrower may have to pay for counseling to receive it in a timely manner. Otherwise, to receive free counseling, your borrower may be made to wait for several weeks. 5. The participation of the borrower s family, advisers and estate planning attorney is encouraged. (16)

20 B. Activities prohibited prior to counseling. The following activities are prohibited until 1) the borrower has received counseling, and 2) the Broker/Correspondent has received the original counseling certificate signed and dated by the counselor and the borrower: 1. Processing an application. 2. Assigning an FHA Case Number. See Chapter 4.1 for additional guidance on when an FHA Case Number can be obtained. 3. Ordering a credit report or appraisal or performing any other action that would result in a charge to the borrower. C. Activities permitted prior to counseling: 1. The Broker/Correspondent may provide a comparison of available HECM products and may utilize amortization schedules, charts, and other sales tools to assist in the borrower s determination of the HECM product that best meets his/her needs. 2. The Broker/Correspondent may generate the application package and obtain the borrower s signature as long as it is permitted by state law. 3. The Broker/Correspondent may obtain an AVM of the value of the real estate that will serve as security for the FHA-insured HECM. An AVM, however, does not take the place of an FHA appraisal. 4. The Broker/Correspondent may order a title search prior to the prospective HECM borrower receiving counseling. However, the borrower may choose to seek counseling prior to or after the Broker/Correspondent orders a title search. In other words, the borrower does not have to wait until the Broker/Correspondent orders and reviews the title search to receive counseling. The costs associated with the title search will be paid at closing. If the borrower does not proceed to closing on the HECM, the borrower may not be charged for this service. D. Quitclaimed or non-borrowing spouses. Effective on all files underwritten on or after November 13, 2009, JBN will no longer accept reverse mortgage loans where there is a nonborrowing spouse. The only exception to this is on refinance transactions where the property is located in a sole and separate state, title is vested solely in the name of the borrowing spouse at issuance of the title commitment, and there is evidence in the chain of title that the borrower originally held title as such. The spirit of this guidance is to prevent the non-borrowing spouse being removed from title for the purpose of doing the HECM loan. Sole and separate states are: Connecticut Delaware District of Columbia Georgia Hawaii Indiana Maine Maryland Massachusetts New York Oregon Rhode Island South Carolina Utah Virginia West Virginia The non-borrowing spouse must attend counseling and must sign and date the Counseling Certificate to acknowledge their participation in and completion of HECM counseling. (17)

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