REVERSE MORTGAGE - HECM LOAN - Guidelines And Procedures

WHOLESALE DIVISION

HECM GUIDELINES AND

PROCEDURES

HECM Guidelines and ProceduresLast Revised: September 26, 2008 Page 1 of 71

Contents

HECM (FHA/HUD PRODUCT)........................................................................................................ 2

PLAN OVERVIEW ............................................................................................................................. 8

INTEREST RATE OPTIONS AND CALCULATIONS ....................................................................... 8

EQUITY CALCULATIONS ................................................................................................................ 9

APPLICATION DOCUMENTS .......................................................................................................... 9

SPECIAL STATE RESTRICTIONS................................................................................................... 15

ORIGINATION FEE AND MIP ....................................................................................................... 15

COUNSELING.................................................................................................................................. 15

GENERAL COUNSELING GUIDELINES ........................................................................................ 16

COUNSELING THE BORROWERS’ REPRESENTATIVES....................................................................... 17

GUIDELINES TO PROCESSING THE LOAN ................................................................................. 17

PENALTIES FOR NON‐COMPLIANCE .......................................................................................... 17

ALLOWED ACTIVITIES PRIOR TO COUNSELING...................................................................... 17

PROHIBITED ACTIVITIES FOR COUNSELORS.................................................................................. 17

CERTIFICATE EXPIRATION DATE ............................................................................................... 18

SOURCES OF COUNSELING.......................................................................................................... 18


USPS.COM ....................................................................................................................................... 19

FHA, LDP, & EPLS........................................................................................................................... 19

FHA CONNECTION (OR CHUMS)............................................................................................ 19 CASE NUMBER ASSIGNMENT......................................................................................................... 19 CASE NUMBER EXPIRATION ......................................................................................................... 19 CAIVRS CLEARANCE................................................................................................................... 19 LDP AND EPLS LISTS ................................................................................................................... 21

CREDIT ............................................................................................................................................ 21

ORDERING THE CREDIT REPORT ................................................................................................. 21

BANKRUPTCIES.............................................................................................................................. 21

CHAPTER 7 BANKRUPTCIES.......................................................................................................... 21 CHAPTER 13 BANKRUPTCIES ........................................................................................................ 21

FORECLOSURE............................................................................................................................... 22

TAX LIENS ....................................................................................................................................... 22

STUDENT LOANS ........................................................................................................................... 23

OUTSTANDING MORTGAGES ...................................................................................................... 23

JUDGMENTS ................................................................................................................................... 23

IDENTITY ........................................................................................................................................ 24

TRU‐ALERT ..................................................................................................................................... 24

OFAC ................................................................................................................................................ 24

APPRAISAL...................................................................................................................................... 25


SUBJECT SECTION ....................................................................................................................... 25 NEIGHBORHOOD SECTION.......................................................................................................... 25 SITE SECTION ............................................................................................................................. 25 IMPROVEMENTS SECTION............................................................................................................26 SALES COMPARISON APPROACH SECTION .................................................................................... 27 RECONCILIATION SECTION.......................................................................................................... 27 ADDITIONAL COMMENTS SECTION............................................................................................... 27 COST APPROACH SECTION .......................................................................................................... 27 PLANNED UNIT DEVELOPMENT SECTION......................................................................................28 ATTACHMENTS ...........................................................................................................................28 EXPIRATION OF APPRAISALS........................................................................................................28 RE‐USE OF APPRAISALS................................................................................................................28

REPAIRS .......................................................................................................................................... 30

REPAIR POLICY OVERVIEW..........................................................................................................30 WHICH REPAIRS MUST BE COMPLETED ........................................................................................31 EXAMPLES OF REPAIRS THAT MAY BE WAIVED:............................................................................... 32 WHEN YOU CANNOT SET‐A‐SIDE FOR REPAIRS............................................................................. 32 NATURE OF REPAIRS.................................................................................................................... 32 TOTAL COST OF REPAIRS............................................................................................................. 33 CONTRACTOR QUALIFICATIONS................................................................................................... 34 CONTRACTOR ESTIMATE (BID) REQUIREMENTS............................................................................ 34 REPAIR SET ASIDE CALCULATION................................................................................................. 34 INSPECTION OF REPAIRS: ............................................................................................................ 35

TERMITE GUIDELINES .................................................................................................................. 36

TERMITE INFESTATION................................................................................................................36 TREATMENT PRIOR TO CLOSING..................................................................................................36 TREATMENT AFTER CLOSING ....................................................................................................... 37 TERMITE DAMAGE ...................................................................................................................... 37

FLOOD & HAZARD ........................................................................................................................ 38

FLOOD CERTIFICATION AND INSURANCE ...................................................................................... 38 FLOOD INSURANCE ..................................................................................................................... 38


TITLE & LIENS ................................................................................................................................ 41

TITLE COMMITMENT................................................................................................................... 41 VESTING..................................................................................................................................... 41 ADDRESS.................................................................................................................................... 41

TAXES, LIENS AND PAYOFFS ....................................................................................................... 42

GIFT LETTERS................................................................................................................................. 43

SURVEYS.......................................................................................................................................... 44

SPECIAL CIRCUMSTANCES .......................................................................................................... 45

HECM STREAMLINED REFINANCE ...............................................................................................45 OVERVIEW .................................................................................................................................45 OTHER SERVICERS ......................................................................................................................45 STEPS TO ORIGINATING AND PROCESSING A REFINANCE................................................................45 DISQUALIFIED BORROWERS........................................................................................................46 DEFAULTS ..................................................................................................................................47

DEATH CERTIFICATES.................................................................................................................. 47

SUBORDINATION ......................................................................................................................... 47

GENERAL GUIDELINES................................................................................................................. 48

MULTI‐FAMILY APPRAISALS ....................................................................................................... 49

WELL AND SEPTIC ......................................................................................................................... 49

HEATING......................................................................................................................................... 50

OIL TANKS .................................................................................................................................50 SPACE HEATERS.......................................................................................................................... 51 WOOD STOVES & UNUSUAL HEAT SOURCES ................................................................................. 51


FLAT ROOFS ................................................................................................................................... 51

AGRICULTURAL LAND AND EXCESS LAND .............................................................................. 51

“EXCESS LAND” IS LAND THAT WAS NOT INCLUDED IN THE VALUE OF THE PROPERTY ON THE APPRAISAL. ..................................................................................................................... 51

DOUBLE LOTS AND EXCESS ACREAGE ........................................................................................... 51

PRIVATE ROADS AND SHARED DRIVEWAYS ........................................................................... 52

POWER OF ATTORNEY................................................................................................................. 52

POA DOCUMENT........................................................................................................................ 53 APPLICATION, COUNSELING & COMPETENCY................................................................................ 53 SIGNING..................................................................................................................................... 53 AT CLOSING ............................................................................................................................... 54

GUARDIAN OR CONSERVATOR................................................................................................... 54

GUARDIANSHIP DOCUMENT........................................................................................................ 54 APPLICATION, COUNSELING & COMPETENCY................................................................................ 54 LDP AND GSA............................................................................................................................ 54 SIGNING DOCUMENTS................................................................................................................. 54

LIVING TRUSTS .............................................................................................................................. 55

GENERAL TRUST GUIDELINES ...................................................................................................... 55 REVOCABLE TRUSTS.................................................................................................................... 55 BENEFICIARIES ...........................................................................................................................56 OBTAIN A COPY OF THE TRUST ....................................................................................................56 TRUST APPROVAL .......................................................................................................................56 TRUST ITEMS SIGNED AT CLOSING ...............................................................................................56 TRUSTS WITH POAS OR CONSERVATORS ......................................................................................56

LEASEHOLD.................................................................................................................................... 57


LIFE ESTATE.................................................................................................................................... 57

LOANS CANNOT CLOSE IN A LIFE ESTATE IN TEXAS. .............................................................. 57

NON‐BORROWING SPOUSES ...................................................................................................... 57

LEGALLY SEPARATED SPOUSES.....................................................................................................59

PLANNED UNIT DEVELOPMENT – PUD .................................................................................... 59

MODULAR AND MANUFACTURED HOMES............................................................................... 59

MODULAR HOMES......................................................................................................................59 DEFINITION OF A MANUFACTURED HOME(MOBILE HOME).......................................................... 60 GUIDELINES FOR MANUFACTURED HOMES.................................................................................. 60 MANUFACTURED HOME APPRAISALS ........................................................................................... 61

CONDOMINIUMS AND CO‐OPS .................................................................................................. 61

DEFINITIONS.................................................................................................................................. 61

CO‐OPS ..................................................................................................................................... 61 GENERAL CONDO GUIDELINES .................................................................................................... 61 CONDOMINIUM APPRAISALS .......................................................................................................63 FOR MORE INFORMATION REGARDING SPOT CONDO APPROVALS, SEE REVERSE MORTGAGE ALERT

#2008‐04) .................................................................................................................................64 HUD APPROVED CONDOS ..........................................................................................................64 RIGHT OF FIRST REFUSAL PERMITTED FOR CONDOS .....................................................................65 RECREATIONAL LEASES FOR CONDOS...........................................................................................65

GLOSSARY OF TERMS ................................................................................................................... 66


HECM (FHA/HUD Product)

Plan Overview

Maximum Lending Limit: Maximum HUD loan limit depending on the geographic area

Non‐recourse loan Available to homeowners 62 and older No income approval; minimal credit approval No restrictions on use of loan proceeds (tax free)*Consult your tax advisor Eligible home types include single family, 1‐4 unit, Condo, PUD, and manufactured homes

No Home Purchase Product Available Variable T‐Bill or Libor interest rate is adjusted monthly or annually Federally Insured 2% MIP* plus monthly premium of ½% of outstanding loan balance Funds are available as upfront cash payment, line of credit, tenure payment (monthly income for as long as the borrower lives in the home), term payment (monthly income for a set term), or a combination of the above

Available balance in the line of credit grows annually at mortgage interest rate plus ½% (the ½% is equivalent to the monthly MIP)

Loan origination and closing costs may be financed in the loan A monthly service fee is added to the loan balance and a Set‐Aside is taken at the initiation of the loan

Social Security or Medicare eligibility should not be affected Need‐based programs, such as Medicaid and SSI, may be affected. Borrowers should consult a trusted advisor before proceeding

No minimum draw on Line of Credit No minimum cash draw at closing No Equity or Appreciation Sharing Features

Interest Rate Options and Calculations Monthly ARM 1‐yr T Bill index or LIBOR index + margin. No monthly/annual cap, Lifetime cap = 10 points above initial rate

Annual ARM 1‐yr T Bill index or LIBOR index + margin (3.10%) 2% annual cap increase Lifetime cap = 5 points above initial rate

FIXED Rate‐LIBOR 5 year swap. No Principal Limit Lock available on Fixed. Rate is locked up to 4 days prior to closing


Equity Calculations Based on the home value or maximum claim amount (whichever is less), expected interest rate, and the age of the youngest borrower

HECM uses both an “initial rate” and “expected rate”. The expected rate (based on 10‐yr T bill or LIBOR + margin), is only used to calculate the equity available. The initial rate (based on 1‐yr T bill or LIBOR+ margin) is the note rate (variable interest charged on the outstanding loan balance)

120 Day Principal Limit Protection. The PLP protects the amount of funds the net principal limit, not the interest rate. PLP expires 120 days after the FHA Case Number is assigned.

Application Documents Required application disclosures must be printed through LLS. Calculation printouts are provided by the SLN software.( See submission checklist for a list of required application forms)

Loan Officer Certification The loan officer certifies that he or she had certain forms completed and signed, and has given the borrowers certain forms to read. This is not a complete checklist of all forms required at the application.

1009: Application

Like the 1003 application, but altered specifically for Reverse Mortgages. We no longer accept the 1003; Application form 1009 must be used.

At application, all spaces on the 1009 except the case number and legal description must be completed. Although vesting information may not be available, it is wise to at least ask the borrowers who owns the home. If any non borrowers own the home, advise the borrowers that all parties on title must be eligible for and participate in the reverse mortgage. (Life estates and trusts are eligible as listed in the “Life Estate” heading and the “Living Trusts” heading)

Otherwise, fill in all information, even items that do not seem to apply, such as monthly income. Although it is not necessary to verify some information such as the borrowers’ monthly income, this information is necessary for HMDA reporting purposes.


Please include this information to avoid file delays.

The borrowers’ dates of birth and Social Security numbers must match the information verified on the Customer ID Certification and must be consistent throughout the file.

The “Real Estates Assets” line includes the home value and should not be zero. Fill in the marital status for each borrower. If the borrower is married and the spouse is not on the loan, refer to the “Non Borrower Spouse” heading on page 41.

On the bottom of the 2nd page, write the estimated amount of loan proceeds that will be used for home improvement. It is not necessary to verify that the home improvement takes place.

o Examples: o “$0.00 Allocated for Home Improvement.” o “$5,000 Allocated for Home Improvement.”

There is no correlation to this question and what underwriting conditions for required repairs. This is for government monitoring purposes only.

The Loan Officer must sign and date the third page and fill in phone number and address.

For broker loans the address should match the address of a branch of the broker company that has been approved by World Alliance Financial.

The Loan Officer must complete the interviewer section contained in Section VIII of the 1009 as part of the application interview. It is a critical component of the government monitoring information. If the application was face‐to‐face, we will not underwrite the file until the borrowers’ race, ethnicity, and gender are filled in.

Face‐to‐face Interview o The Loan Officer should ask for the borrower’s race, ethnicity, and gender

and fill that information in. o If either of the borrowers declines to provide the information the Loan

Officer must fill that in based on visual observation or surname. Telephone interview:

o The Loan Officer should ask for the borrower’s race, ethnicity, and gender and fill that information in.

o If the borrower declines to provide the information, the Loan Officer will select the “I do not wish to furnish this information” option.

Mail, Fax, or Internet: o The Loan Officer should ask for the borrower’s race, ethnicity and gender

and fill that information in. o If the borrower declines to provide any information, the Loan Officer will

select the “I do not wish to furnish this information” option.



o If the borrower provides partial information, the Loan Officer should indicate that the borrower provided partial information.

Alternate Contact This must be used in addition to or instead of the space on the application. We prefer two contacts, but only one is required. We prefer a contact that does not live with the borrower. We prefer that the contact be aware of the loan to assist with repairs or when the loan comes due.

The contact can be a friend or a relative. **If the information is provided on the 1009 the underwriter should not condition for the alternative contact form. The 1009 must include all of the information listed above, or underwriting will condition for the form

USA PATRIOT Act Customer Identification Certification Use one form for each borrower. In other words, use two of these forms if there are two borrowers.

Use an additional form for each Power of Attorney or Guardian/Conservator. Additional requirements apply for these two circumstances. Refer to the POA heading for more information about POAs, and the Guardian/Conservator heading for more information about Guardians.

Non‐compliance with the Customer ID Policy carries heavy fines from the US Government, and potentially cease and desist orders.

Borrower’s Certification and Authorization

Borrowers certify that they did not misrepresent or omit information on the application.

Important Terms Disclosure/Application Truth‐in‐Lending Contents of form vary by product; each product has its own form. Explains the important terms of the loan, including a rate history. May be state‐specific and is updated annually. Include all pages in file.

Notice of Availability of Real Estate Appraisal Notifies the borrowers of their right to see their appraisal. For broker loans, the broker must fill in address in middle of form.

Housing Discrimination/Fair Lending Disclosure

This form explains that discrimination based on certain characteristics is illegal. If you suspect discrimination, please call or email a World Alliance manager immediately.

List of Required Providers A RESPA‐required addendum to the Good Faith Estimate. Lists the names, addresses, and phone numbers of any third party providers of service that were not chosen by the borrower.

Affiliated Business Disclosure If a lender or broker will be using an affiliated business, such as a closing agent owned by the lender or broker’s company, include that information on the List of Required Providers.

You must also include a separate Affiliated Business Relationship disclosure specifically explaining that affiliation. (This is a RESPA form)

The additional disclosure should also explain that you do not require that the borrower use the affiliated business.

RESPA Servicing Transfer Disclosure This form explains to the borrower the likelihood that servicing will be transferred to someone other than the closing lender. (World Alliance services all of their reverse mortgages).

Broker should use their own form if closing in their own name.

Lead Based Paint Certification If the home was built prior to 1978, the borrowers should indicate whether any small children live in the home. If so, any peeling paint must be repaired.

Calculation Disclosures These forms do not have a World Alliance number. These forms print from SLN and are specific to the product and options chosen by the borrower.

Disclosures should consistently reflect the same product indicated on the 1009 application.

Disclosures should show the same date of birth verified on Customer ID Certification

Comparison: o Compares reverse mortgage programs. Must compare at least two products

Demo/Print‐Screen: o This disclosure was created by FHA and is available for the HECM product only. o This form is optional at the application, but it will be required at the closing.

Amortization Schedule: o Shows how borrower’s loan balance is likely to grow after closing.

TALC: o Also called Total Annual Loan Cost Rate.


o Like an “annual percentage rate”, but takes into account fluctuating home value, withdrawals of funds, term of loan, etc.

Good Faith Estimate o Estimates the fees that will be listed on the HUD‐1 at closing. Expected Principal Limit Disclosure If the Broker/Loan Officer has used the software to quote the borrower and then later prints an application package they will need to enter the actual signing date in RM App and go to the rates page and hit the “Use Best Rates” button. This will show the proper calculations in all screens, otherwise your Principal Limit lock disclosure rate will not match all of the other application documents o Found in S.T.O.R.M. o Related to Principal Limit Protection.

Disclosure Regarding Excessive Fees [Paid to Estate Planning Service Firms] Applies to HECM product only

Explains that the borrower may not pay a portion of the origination fee, or any fees over and above the closing costs, to an estate planning service for their assistance in obtaining a reverse mortgage. This is considered a referral fee, and it is illegal. Payments on a reverse mortgage are limited to Sellers, lenders, and third parties such as appraisers.

Tax and Insurance Disclosure Applies to HECM and HomeKeeper products only

Borrower must indicate whether they intend to set aside for taxes or insurance. They must indicate what they would like to set aside for (taxes, insurance, or both) and for how long.

Because of the nature of the reverse mortgage, most borrowers do not set aside for taxes and insurance. Escrowing for taxes and insurance decreases the net principal limit. In other words, if the borrower escrows for taxes and insurance, we must set aside money from the loan amount, and this decreases the cash available to the borrower.

As they are deciding whether to set aside for taxes and insurance, remind your borrowers that they are responsible for paying their taxes and insurance after the closing.


General Authorization, Joint Application, and Bankruptcy Statement This is a three‐part form. Each part must be signed and dated by all borrowers, and by the loan officer (“Lender”) where indicated. (or if LIBOR loan, will be in included in the 5 page disclosure)

The Joint Application question should be answered “yes” if there are two borrowers and “no” if there is one borrower.

Reverse Mortgage Advisor Disclosure Advises borrower to consult with an attorney, relative, or other trusted friend before continuing with a reverse mortgage.

Borrowers should list the person(s) they have consulted with, or indicate that they have not consulted with a third party.

Other Notifications Disclosure This form has two pages with several disclosures. The top of page 1 should be completed with the borrowers’ names and addresses. The annuities section at the top of page 1 must be signed and dated by both borrowers.

The borrowers must check the first box at the top of page 2. (If the borrowers acknowledge by checking box 1 that they have been informed, no further action is needed regarding box 2.) If the borrowers do not check box 1, they must check the 2nd box and include the insurance company’s information.

Special Forms If your borrower has a condominium or a multi‐family home, please have the appropriate form signed (Spot Condo Form or Hotel and Transient Use Form). Also read the “Condominiums” heading or the “Multi‐Family” heading before proceeding. Additional guidelines for HECM product only Private Well and Septic Notice

Make sure that the borrowers indicate whether they have a well or septic tank. If they do, please read the “Well and Septic” heading.

Loan Payoff Request This is an optional form for borrowers who have a loan to be paid off.

State‐Specific Forms Brochure: Is a Reverse Mortgage Right for You?

This form is a brochure which does not have to be signed.


Explains the basics of reverse mortgage, and potential drawbacks, including how the mortgage is likely to affect the borrower’s government benefits. Become familiar with the brochure called “Is a Reverse Mortgage Right for You?” It explains how a reverse mortgage can affect the special circumstances that senior citizens deal with (such as how reverse mortgages affect Medicaid).

Special State Restrictions Texas Information Proposition 7 on the ballot in November of 2005 changed reverse mortgage law and now will allow lines of credit and funding on any day of the month. This is available for all borrowers whose loans closed after March 17, 2006. (Borrowers whose loans closed prior to that date must refinance their HECM loan if they want a line of credit. Because Texas law only allows reverse mortgages to a “natural person”, loans cannot close in a trust or a life estate. In Texas, a document preparation fee is not allowed. However, an attorney review fee is allowed, because the final loan documents at closing must be prepared by an attorney. The fee for attorney review will be paid to the attorney, not World Alliance Financial. World Alliance is only able to approve Closed Loan Sellers for business in NC as brokering reverse mortgages in North Carolina is prohibited.

Origination Fee and MIP $2000.00 or 2% of maximum claim amount* ‐ whichever is GREATER 2% MIP* plus monthly premium of ½% of outstanding loan balance All legitimate third party fees may be financed into the loan balance

*Origination and Mortgage Insurance premiums are calculated using the Maximum Claim Amount(MCA for HECM) – not amount borrowed

Counseling HECM counseling must be completed prior to borrowers commitment to the loan (cannot incur any costs on the borrower’s behalf).

Counselors must be FHA approved to offer HECM counseling.


The original counseling certificate or a copy with both counselor and borrower(s) signature is required for loan approval with original to be in file by closing; counseling certificates are product specific and not transferable.

See Reverse Mortgage Alert #2008‐01 for more information

General Counseling Guidelines For the HECM loans, we may not process the loan or order ANY documents that cost money until counseling has been completed. This rule does not apply to the EPA (Equity Plus Advantage) or Simple 60, except for special rules in California.

Borrower, spouse, POA, guardian, conservator on title to the property must receive counseling and a counseling certificate as well as any non borrowing spouses.

The original or certified copy of the counseling certificate (signed and dated by the counselor and all potential borrowers and/or their representatives) must be included with every loan submission. At NO time in the process may you or an employee contact a counselor or counseling agency to:

o Refer a client; o Discuss a client’s personal information, including the timing or scheduling

of the counseling; o Request information regarding the topics covered in a specific counseling

session.

Counseling certificates are program specific; that is, there is one certificate for HECM, one for Home Keeper, one for the EPA (Equity Plus Advantage) and one for the Simple 60.

Face‐to‐face Interviews: For HECM loans, a face‐to‐face interview is no longer required. (accept as listed below)

• Face‐to‐face counseling is required by law in Massachusetts and North Carolina, even if the application was face‐to‐face.

• The Loan Officer attendance at closing will not substitute for the face‐to face interview or the face‐to‐face counseling.

World Alliance Financial requires that a non‐borrowing spouse also attend counseling. There are additional requirements for removing a spouse from title. They can be found under the “Non‐Borrowing Spouse” heading.


Counseling the Borrowers’ Representatives Persons with power of attorney or guardianship must be counseled. See the “Power of Attorney” or “Guardian/Conservator” heading for additional requirements.

Guidelines to Processing the Loan We will not begin processing until AFTER Counseling has been completed! None of these items may be ordered before counseling is complete:

Credit Report Termite Report Flood Certification Appraisal Case Number Assignment

Penalties for Non‐Compliance We cannot collect any fees from the borrower at closing if we incurred them prior to counseling.

Allowed Activities Prior to Counseling Educate the borrower about reverse mortgages and discuss whether the potential borrower is eligible.

Run an AVM or similar report to help determine the estimated value of the property (cannot charge to the borrower)

Discuss fees and the potential implications of a reverse mortgage. Take an application and provide the borrower with copies of the mortgage, note, and loan agreement (HECM only)

Provide the borrower with the appropriate lists and counseling options. Order a preliminary title report (except in California). Ensure that potential borrowers have not incurred any financial obligation until after receipt of the counseling certificate and the borrower reaffirms intention to continue with the application.

Prohibited Activities for Counselors Counselors may never provide information on the specific prices charged by any individual lender.

Counselors are not permitted to promote, represent, recommend, or speak for any specific lender.


Counselors may not charge the borrowers a fee. In some situations, lenders may pay for counseling. If you have any questions about this policy, please contact your manager.

If you have concern about the service provided by a counselor, please contact your manager.

Certificate Expiration Date The initial application must be taken before the counseling certificate expires (it is not necessary for a loan to close before the certificate expires).

If the certificate has expired, the borrower may not waive the additional counseling session, even if they believe that a second session would not be useful.

If the certificate has multiple borrowers, as long as at least one borrower’s signature on the certificate is within the 180‐day expiration period, we may consider the counseling certificate as being valid for all borrowers on the loan.

Sources of Counseling National Foundation of Credit Counselors: The toll free telephone number is: 866‐698‐ 6322 Counselors are available from 7:30 am to 8:00 pm EST Monday through Thursday, and on Fridays from 9:00 am to 6:00 pm EST.

Money Management International: The toll free telephone number is: 877‐908‐ 2227 Counselors are available from 6:00 am to 8:00 pm EST Monday through Friday.

AARP: The AARP counseling Web site is at: http://www.hecmresources.org. The toll free telephone number is: 800‐209‐ 8085 (local 202‐434‐6082) Borrowers facing foreclosure, or other similar emergencies, may call: 202‐434‐6051 Counselors are available from Monday to Friday from 7:00 am to 12:00 a (midnight) EST.

Local Housing Counseling Agencies: These agencies are not necessarily approved by AARP. They are approved by HUD, and may also provide face‐to‐face or telephone counseling. These counselors may only perform counseling for borrowers in their state. The loan officer must give the borrower the name of five counselors from this list, unless there are fewer than five counselors in your state. The list of counselors can be located at: http://www.hud.gov/offices/hsg/sfh/hecm/rmto pten.cfm

Fannie Mae Telephone Counselors no longer provide HECM counseling. Direct Connect Reverse Mortgage Counseling Services:


http://www.hecmresources.org/

http://www.hud.gov/offices/hsg/sfh/hecm/rmto

Direct Connect is helpful in areas where other sources of counseling have a waiting time of more than a few days. The Direct Connect management system was created by OneSource Educational Development Corporation. Direct Connect can satisfy all counseling requirements for HECM, EPA (Equity Plus Advantage)and Simple 60 loans, and will issue counseling certificates within 24‐72 hours. The loan officer may provide the applicant with information regarding Direct Connect.

USPS.com In order to confirm the correct address for every loan submission, you must confirm the borrower’s address on the United States Post Office website at www.usps.com. To avoid confusion, notify your processors if the borrowers’ mailing address is different than their street address.

FHA, LDP, & EPLS

FHA CONNECTION (or CHUMS)

Case Number Assignment

You must include a printout of the case number assignment (along with the CAIVRS clearance on all borrowers) in every HECM loan submission. The Case Number is FHA’s loan number. The case number assignment date is also used to determine the expiration date of the Principal Limit Lock on the HECM ARMs. The Principal Limit lock expires 120 from the Case Number Assignment date.

Case Number Expiration

Case Numbers do not expire. However, if the appraisal expires and we order a new appraisal, we will also cancel the Case Number and order a new one.

CAIVRS Clearance

Applies to HECM product only CAIVRS is an indication that the borrower is in default on a federal loan, such as a student loan or an IRS tax lien. If a borrower is in default, we may not be able to close the loan. It depends on what kind of loan the borrower defaulted on, and how long the borrower has been in default. The CAIVRS report expires 90 days at the time of underwriting, and 120 days at the time of closing. See more info below.


http://www.usps.com/

Case Authorization Interactive Voice Response System (CAIVRS) Clearance may show at the bottom of the FHA Case Number printout, or may be checked separately on the FHA Connection. The report should include a number that is preceded by the letter “A.” If an “A” does not appear in front of the number, read the “If CAIVRS is Not Clear” heading below. This site must be checked on all borrowers by Social Security number. You can check the CAIVRS separately by following these instructions: From the FHA Connection page, click Single Family FHA

From the Single Family FHA page, click Single Family Origination From the Single Family Origination page, click Case Processing From the Case Processing page, click CAIVRS Authorization CAIVRS expires 90 days at time of underwriting, 120 days at closing.

If CAIVRS is Not Clear Applies to HECM product only If CAIVRS is not clear (if claims or defaults are found on file) the processor will contact the appropriate HUD Homeownership Center (HOC). The HOC will send a printout showing information about the default, and the underwriter will use the printout to determine the borrower’s eligibility. An explanation of that printout is available at: http://www.hud.gov/offices/hsg/sfh/ref/sfhp2‐09.cfm. You may also contact the HOC directly by going to http://www.hud.gov/offices/hsg/sfh/hoc/hsghocs.cfm. If CAIVRS indicates the borrower is presently delinquent on an FHA loan, or has been delinquent within the previous three years, the borrower is not eligible for a HECM loan. Exceptions:

Assumption. If the borrowers can prove that they sold the property to an individual who subsequently defaulted, the borrowers are eligible.

Divorce. A borrower may be eligible if a divorce decree or legal separation agreement awarded the property and responsibility for payment to the former spouse, and the spouse subsequently defaulted.

Bankruptcy. When the property was included in a bankruptcy that was caused by circumstances beyond the borrower's control (such as the death of the principal wage earner or serious long‐term uninsured illness), the borrower may be eligible if the borrower meets certain requirements. For more information refer to HUD Handbook 4155.1 paragraph 2E. The appropriate HOC can provide information about when the three‐year waiting period will elapse or if the Social Security number in CAIVRS is erroneous.

CAIVRS and Other Federal Debt Applies to HECM product only


http://www.hud.gov/offices/hsg/sfh/ref/sfhp2-09.cfm

If the borrower is delinquent on another type of federal debt, the same rules apply as for federal debts found on the credit report. Refer to the “Credit Report” heading below

LDP and EPLS Lists

LDP and EPLS are lists of people and companies that may not participate in FHA transactions. You must check the LDP and EPLS sites to ensure that your borrower is not on those lists. If your borrower’s name appears on this list, he or she is not eligible for a loan.

Credit

Ordering the Credit Report An “in‐file” credit report is required on all loans. The credit report must be run with three repositories and a public records check.

Bankruptcies There are two kinds of bankruptcies that your borrower is likely to have: Chapter 7 or Chapter 13.

Chapter 7 Bankruptcies Chapter 7 bankruptcies must be dismissed or discharged.

If the credit report says that the bankruptcy was dismissed or discharged over a year ago, no additional documents are required.

If it was dismissed or discharged less than a year ago, or if the credit report does not show anything, a court order signed by the judge must be submitted as proof of the discharge or dismissal.

Chapter 13 Bankruptcies Chapter 13 bankruptcies leave 2 options:

The borrower may pay the bankruptcy off at the closing. Obtain a payoff letter from the trustee.

The borrower may continue with the bankruptcy and the reverse mortgage.

o The borrower still has to pay off any liens against the property, and any federal debt.


o Obtain a written permission from the court signed by the judge, indicating that the lender may continue with the reverse mortgage without paying off the bankruptcy.

o When obtaining the permission, make sure that it specifies that the mortgage will be an adjustable rate reverse mortgage.

o Ask the court not to specify a rate. Approval should either be at “current market rates” or the current rate plus a stated percentage. (e.g. LIBOR plus 5%)

o Otherwise, if the rate allowed by the court is less than the current rate at closing, we cannot close the loan.

World Alliance Financial must have the trustee payoff letter or the statement from the judge prior to closing.

Foreclosure We will close any loan in foreclosure, as long as it meets the other loan requirements. The status of the foreclosure does not matter, as long as the foreclosure is not complete. We will RUSH underwrite a file in foreclosure. Processing should be notified prior to sending the file. “RUSH” should be written on the outside of the file. Include proof of foreclosure. Also, add a comment indicating that the borrowers are in foreclosure, and include the date of the foreclosure. Right of rescission can be waived in foreclosure ONLY if the home will be sold during the rescission period. This can only be approved by compliance.

Tax Liens All Federal tax liens and those secured by our subject property must be paid off at closing. Your processor must obtain a payoff. Federal Judgments and Debts In the case of a federal judgment or debt, current FHA policy requires either that the federal judgment or debt be paid‐in‐full or that a satisfactory repayment plan be made with the federal agency. The HECM borrower does not have to satisfy the total federal judgment or debt outstanding to be eligible to receive a HECM loan if he or she has entered into a satisfactory repayment plan with the federal agency owed. In addition, a prospective HECM borrower credit report must be reviewed to check for any claims, defaults or debts to the federal government, and any existing debts against the real estate that will serve as the collateral for the FHA‐insured HECM loan. Any delinquent federal debts or liens against the real estate, which will serve as collateral for the FHA‐insured HECM loan, must not be in excess of the borrowers net principal limit unless the


borrower has a separate source of funds from which to draw. Liens against the real estate must be removed or subordinated to the first and second HECM liens.

Student Loans All delinquent student loans must be paid off. Processing must obtain a payoff and a deferral agreement. If the borrower has a defaulted student loan, make sure that the CAIVRS is clear. Refer to CAIVRS information on page 8

Outstanding Mortgages All outstanding mortgages must be paid off on the property being used as collateral for the reverse mortgage. If there is a mortgage on another property, you must obtain proof or documentation, which can be a copy of the deed, mortgage coupon book, letter from the mortgage company, or any acceptable documentation.

If there are any liens less than a year old on the credit report, the title company must confirm that this lien is not against the home. (This is because some counties are behind in their recording.)

Judgments Judgments must be paid off at closing if they are a lien against the property securing the reverse mortgage.

The title company can verify liens and judgments on the property. Any outstanding federal debt must be paid off or proof of a satisfactory repayment plan must be provided.

Proof of the status of all judgments is required. The underwriter may require evidence of satisfaction or payment arrangements.

State and Local Court Judgments and Judgment Liens

Several HECM lenders have inquired whether a prospective HECM borrower against whom a judgment has been entered, and remains unsatisfied, must satisfy that judgment prior to the HECM closing even though the judgment has not resulted in a judgment lien against the borrower’s real property. A judgment is a courts final determination of the rights and obligations in a case. A money judgment is a judgment for a specific sum of money and is subject to immediate execution, whereas a judgment lien is a lien imposed


against the judgment debtor’s property. A judgment lien gives the judgment creditor the right to seize a debtor’s assets (i.e., real property) to secure a judgment, or sell the assets to satisfy the judgment. In accordance with FHA policy, a prospective HECM borrower is not required to use HECM proceeds or satisfy an unpaid state or local court‐ordered judgment prior to closing. In cases where an unpaid state or local court‐ordered judgment results in a judgment lien against the real estate, which will serve as the collateral for the HECM loan and the judgment lien will not be subordinated to the HECM first and second liens then it must be satisfied prior to closing.

A HECM mortgagee, however, has the option of requiring that a prospective HECM borrower satisfy an unpaid state or local court‐ordered judgment even though the judgment has not resulted in a judgment lien against the borrower’s real estate. In the event that a state or local court‐ordered judgment against a HECM borrower is not satisfied prior to the HECM closing and subsequently that judgment results in a judgment lien against the real estate, that judgment lien must be made subordinate to the HECM first and second liens.

Identity Credit reports may indicate conditions that need additional and immediate attention. These conditions may include: name differences, erroneous social security numbers, etc. The underwriter may ask for additional verification or a name affidavit. The underwriter will compare the identity information on the credit report to the information gathered on the Customer ID Cert. If the credit report was ordered with the wrong social security number, a new credit report must be ordered. Per HUD guidelines, credit reports may contain as few as the last four digits of the Social Security number. Sellers remain responsible for validating the Social Security number using the Customer ID Certification as usual.

Tru‐Alert Credit reports also check for identity theft and other fraud. This is called the Tru‐Alert. The underwriter should check the credit report for any possible fraud.

OFAC Should be checked on credit report, if a positive hit is found, loan should be escalated to the underwriting manager who will check the OFAC website and escalate to compliance if an exact match is found.


Appraisal Must use an FHA, approved appraiser (subject to repairs). Home must meet minimum FHA guidelines and any subsequent repair requirements. Appraisal Report This section summarizes the property requirements. A few special circumstances with complicated requirements are listed in their own heading in the “Special Circumstances” section. Please also read about manufactured homes, multi‐family homes, and condominiums if applicable. Primary Residence Reverse mortgages must be secured by the borrower’s principal residence. A common question raised in this regard is whether the borrower’s site for voting, automobile registration and the like become the controlling factor in assessing the borrower’s principal residence. The answer to that question is no. For purposes of the reverse mortgage, the borrower’s principal residence is where he/she spends the majority of the calendar year. In other words, if the borrower typically spends at least 183 days of the calendar year at the proposed collateral property, that property would be considered the borrower’s principal residence. The borrower may only have one principal residence at any one time.

Subject Section

The Occupant should say “owner”. If the borrower is not the occupant, we cannot close the loan.

If the Property Right Appraised says “Leasehold,” or if the appraiser shows ground rent on the appraisal, please read the “Leasehold” heading.

If anything is checked under “Project Type” please read the “Planned Unit Development” or “Condominium” sections of this guide.

The subject property should not be currently for sale. If it is we will require proof that the property listing has been withdrawn

Neighborhood Section

Present land use should not show that the land use change is in progress to a nonresidential use (such as commercial).

Site Section

Check the site area for excess land and if necessary read “Excess Land” heading.


The zoning classifications must be noted and must allow for the number of units. If there is zoning, zoning compliance must be “Legal”. If it is “Legal Non‐Conforming” we will need a letter from the zoning board stating that the home can be rebuilt if completely destroyed. If you can’t obtain that letter, we may be able to close the loan if the borrower will sign a “Hold Harmless” agreement at the closing saying that they understand that if the home is destroyed, home insurance payments will be paid first to satisfy the lien. If zoning is illegal, the file may be rejected. If there is no zoning, the file will be accepted as long as the home is in an area used for residences (rather than a commercial area).

The highest and best use must be “Present Use”. For example, if the borrowers live in a small house in the midst of a group of skyscrapers, that is not the highest and best use of the property, and we will probably reject it.

If there is a well on the property, please read the “Well and Septic” heading. The appraiser will look for site considerations such as high power lines. Please read the “Repairs” section. Some site considerations, such as soil poisoning or hazardous waste, must be corrected prior to closing.

If there is a nearby radio tower, high‐voltage power line, cell phone tower, etc. you may need an engineer’s certification that the home is not within falling distance.

Improvements Section

Homes may have one to four units for the HECM loan. The home must be single‐family. If the home has more than 1½ units, the appraiser must use the Small Residential Income Form (1025).

• A half‐unit is a unit that is subordinate in size and design to the main unit, such as a basement apartment in a residential home. 1½ units are allowed, and the appraiser should use the single‐family form (1004). 2½, 3½, and 4½ units are not allowed.

If the foundation shows evidence of infestation, dampness, or settlement, the appraiser should condition for repairs.

Heating: • Check for oil heaters, space heaters, wood stoves, and unusual sources of

heat, and read the Heating heading. • All homes must have heat, except in counties in tropical areas (southern

Florida and Hawaii). See HUD Keywords Index under “Heating” for counties.

Check the windows in Exterior Description. • Barred bedroom windows and only one window per room must have an

emergency release mechanism. Appraiser will list repairs in Condition of Property, and repeat the repair information in the Comments on page 3.


If the property is an unusual home (such as a log home or an extremely modern home) the appraiser should find additional comps. The appraiser will also complete the Cost Approach Section. (See more information in the Unique property section )

Sales Comparison Approach Section

In this section, the appraiser compares the borrower’s home to other properties in the area. The appraiser must provide at least three comparables less than one year, which can be difficult in areas with few recent sales.

Home must be 100% complete at time of inspection and a Certificate of Occupancy is required if the home is new.

At the bottom, the appraiser will indicate how much the home is worth using this approach. This is not the appraised home value, because there are other possible approaches.

Reconciliation Section

At the top of this section, the appraiser should show the results of the various valuation approaches.

Additional Comments Section

HUD added this section so that the appraiser can comment on the appraisal without attaching an addendum. It may include long legal descriptions and other explanations that did not fit elsewhere

Repairs and inspection requirements will be summarized here. Our repair policy is listed in a separate heading in this Underwriting Guide

Cost Approach Section

The Cost Approach shows the cost to build the home as‐is, new, and then takes depreciation into account.

The estimated remaining life of the property must be shown. The remaining life must be at least 30 years or longer. (This is only likely to be a problem with manufactured homes)

If the Estimated Site Value exceeds 35% if the home value, appraiser must comment on whether that is typical for the area.

To assist in calculating the hazard insurance coverage, the appraiser must complete the entire Cost Approach section or provide the site value or estimated cost new.


Planned Unit Development Section

If the borrower has a home in a PUD, the appraiser must fill this section in. Check to make sure that the borrower is current on their dues to the PUD (title search should show this).

Check to see if roads are public. If not, read Private Roads and Shared Driveways heading.

Attachments

Home may not be listed as for sale, under contract, or active listing; check the photographs for signs in yard. If appraisal indicates home is currently listed for sale, the underwriter should condition for the home to be removed as an active listing. No condition is necessary if the appraiser indicates the home was recently listed for sale.

Expiration of Appraisals

Appraisals expire after six months.

Re‐use of appraisals

Appraisals that were used to close a previous FHA loan cannot be re‐used, even if they are less than six months old. Each new FHA loan requires a new appraisal. Declining Markets Appraisal Practices in Declining Markets World Alliance Financial will order an AVM for any property indicated by the appraiser to be in a declining market. The underwriter will use this information to help support the appraisal and to help determine if the appraiser provided adequate information to support the decline as well as the value. Historically, FHA has provided a counter‐cyclical force in helping to stabilize declining housing markets and will continue to do so. In fact, much of FHAs business activity this year has been in those states (e.g., Ohio, Michigan, Indiana) that have suffered sustained depreciation of home prices due to job losses and increased foreclosures. Nevertheless, recent property value declines in certain markets suggest the need to reiterate our guidance to ensure that appraisers are providing accurate property valuations. A



declining market could be as small as a neighborhood or as large as an entire state, and no standard definition exist other than home prices are falling. Appraiser Responsibilities The purpose of the appraisal is to provide the lender/client with an accurate, and adequately supported, opinion of market value. It is the appraiser’s responsibility to determine whether a property being appraised is located in a declining market. The neighborhood section of each property specific appraisal form contains a housing trends section where the appraiser marks a box indicating property values are increasing, stable or declining.‐ Whichever box is selected, the appraiser is certifying that he/she has performed an objective analysis of quantifiable data supporting the observations made. If a property is located in a declining market, the appraiser must provide an explanation in the Market Conditions section of the appraisal report that includes relevant information in support of the conclusions relating to trends in property values, demand/supply and marketing time. The appraiser must also provide a description of the prevalence and impact of sales and financing concessions and/or down payment assistance in the subject’s market area. Other areas of discussion may include days on market, list‐to‐sale price ratios, and/or financing availability. Lender Responsibilities The mortgagee’s responsibility is to properly review the appraisal and determine that the appraised value used to support the mortgage is accurate and adequately supported. We are held responsible by HUD for the appraisers we select, therefore we have a zero tolerance for fraudulent appraisal reports. We accept responsibility for the integrity, accuracy, and thoroughness of the appraisal submitted to FHA for mortgage insurance purposes. Valuation by Underwriter

When an appraisal in a declining market is reviewed, in addition to all standard information an Appraiser provides, the Underwriter looks for specific information as follows:

The appraiser’s comments regarding the decline in values in the area and whether or not the appraiser took the decline into account when assigning their value to the property;

Comparable properties are nearby and are not outdated; The date of the appraisal relative to the value assigned (older appraisals may require updates from the Appraiser, including better comps);

Recent MLS (Mortgage Listing Service) listings to support the value assigned; A large concentration of homes for sale in the area (this is typically a good indication of declining values).

It is important to note that World Alliance Financial Underwriters are responsible for the final accepted appraised value used for our lending purposes.

After careful review of all facts, an Underwriter may determine that a decrease in the appraised value is warranted. World Alliance Financial may also submit the appraisal to upper management as appropriate. We are confident that implementing this strategy will result in more solid valuations that are completely documented and supported with facts. NOTE: In most cases, the Appraiser should have already adjusted the value in accordance with market conditions, and commented as such, in which case no further adjustment would be warranted. Ineligible Properties

Hawaiian Homelands

Repairs

Repair Policy Overview

Problems with the property are identified by an appraiser, inspector, or termite company. The underwriter decides which of these problems must be repaired. Termite reports are handled separately from other repairs. Read the “Termite” heading in this section. Required repairs are usually only those necessary to protect the health and safety of the occupants, protect the security of the property, or strengthen the soundness of the structure. Read the heading “Which Repairs Must Be Completed” We must address all required repairs before the loan is cleared to close, either by planning a set‐ a‐ side, or by showing that repairs are complete and inspected. Read the heading “When You Can Escrow for Repairs.” Encourage borrowers to complete repairs prior to closing when possible. An inspection by the appraiser will verify that the repairs are complete. To obtain a set‐ a ‐side for repairs:


We need one contractor’s bid, selected and approved by the borrower, prior to closing.

The loan officer is responsible for helping the borrower choose a contractor. The loan officer will provide a list of contractors to choose from but does not recommend a particular contractor.

Appraiser’s estimates are accepted in some circumstances. Read the“Contractor Qualifications” heading, and the “Contractor Estimate (Bid) Requirements” heading. This bid will be used to calculate the set‐aside amount. Read the “Repair Set Aside” heading. The servicing department will administer the repairs and make sure that they are completed inspected after closing. Read the “Inspection of Repairs” heading. We collect an administration fee on the HUD‐1 at closing (this may be added to the loan balance). The administration fee is the greater of $50 or 1.5% of the base repair amount. Typically the Servicing Department will disburse funds by one of the following methods:

Draw Schedule (larger repairs) Initial draw for 1/3 of estimate Disburse funds only at completion of work (smaller repairs)

The disbursement method is at the discretion of the servicing department. After the closing, the servicing department administers the repairs and disburses funds to the contractor as appropriate. The borrower orders the repairs from the contractor. The repairs must be completed within 6 months after the closing.

Which Repairs Must Be Completed

The underwriter decides which repairs will be required, on a case‐by‐case basis. Examples of repairs that will be required:

Inadequate exits from bedrooms to exterior of home Leaking or worn out roofs (if 3 or more layers of shingles on leaking or worn out roof, all existing shingles must be removed before reroofing)

Evidence of structural problems (such as foundation damage caused by excessive settlement)

Defective paint surfaces in homes constructed pre‐1978. o If the damage to the paint is minor, repairs are not required unless there is

a child under the age of seven years residing in the property. o To determine whether there is a child living in the home, we will use Lead

Based Paint Certification. Defective exterior paint surfaces in any home, regardless of the age of the home, where the finish is otherwise unprotected.


Examples of repairs that may be waived:

Missing handrails Cracked or damaged exit doors that are otherwise operable Cracked window glass Defective paint surfaces in homes constructed post 1978 Minor plumbing leaks (such as leaky faucets) Defective floor finish or covering (worn through the finish, badly soiled carpeting) Evidence of previous (non‐active) termite damage where there is no evidence of un‐repaired structural damage

Rotten or worn out counter tops Damaged plaster, sheetrock or other wall and ceiling materials in homes constructed post 1978

Poor workmanship Trip hazards (cracked or partially heaving sidewalks, poorly installed carpeting) Crawl space filled with debris and trash Lack of an all weather driveway surface

When You Cannot Set‐A‐Side for Repairs

In some cases, we will not allow you to do a set‐a‐side for repairs. This is usually due to the urgent nature of the repairs, or the high cost of the repairs.

Nature of Repairs

The underwriter may decide that you cannot do a set‐a‐side for a particular problem because of the nature of the repair. These are usually health‐ and safety‐related repairs that are correcting extremely hazardous problems. Examples include:

Broken or inoperable exterior windows Inadequate exits in case of fire Roof leaks House must be jacked up to repair foundation Well and septic don’t meet FHA requirements Sparking, smoking, unconnected, frayed electrical wiring Evidence of sink holes or slush pits Easements for “high‐pressure” gas or oil lines Evidence of soil contamination Property cannot be legally accessed by road or right‐of‐way Nearby hazards such as:


o Oil or gas drilling (proposed, in progress, or abandoned) o Slush pits o Traffic, fumes, or noise to a hazardous degree o High‐voltage or radio towers in falling distance o Landfills or other hazardous material

Total Cost of Repairs

Sometimes you cannot do a set‐a‐side because the repairs are too expensive. This page explains how expensive the repair can be if you plan to do repairs after closing. Remember, even if the bid is not too expensive, you might not be able to do a set‐a‐side because of the nature of the repair. Definitions:

To understand this section, you need to know that the maximum claim amount is the lesser of the home value or the HUD County Lending Limit. Limits on repair cost when establishing a set‐a‐side:

If the bid is less than 15% of the maximum claim amount, then you may escrow for repairs.

o Example: Max claim is $100,000, and the repair bid is $13,000. That’s 13% of $100,000, and you may establish a set‐a‐side for repairs.

If the bid is more than 15% of the maximum claim amount, then you must complete some repairs prior to closing. (Complete at least enough repairs to reduce the bid to less than 15% of the maximum claim amount. Then you may establish a set‐a‐side for the rest).

o Example: Max claim is $100,000, and the repair bid is $17,000 (17% of $100,000). You get $2 ,000 in repairs done and inspected. This brings the bid down to $15,000 (15%) and you may establish a set‐a‐side for the remaining repairs.

HECM loans only: If required repairs are estimated to cost more than 30% of the Maximum claim amount,(as evidenced by the appraiser or a contractor’s bid) the underwriter should reject the property. A property should not be rejected by an appraiser.


Contractor Qualifications

All repairs must be performed by an engineer, licensed contractor, or qualified professional.

We will accept an appraiser’s estimate for most repairs. Simply including the estimate in the file is not enough. You must tell us specifically that you plan to use an appraiser’s estimate. Otherwise, we will condition you for a bid.

A contractor’s bid is required for structural and foundation repair issues. Soil pollution issues require an EPA inspector.

If you assist a borrower in selecting a contractor, give the borrower a minimum of three (3) contractor names.

Contractors must be licensed in the states in which they operate (if the state requires licensing). If the State does not require a license, we must have a copy of the contractors insurance and E & O. Electricians and plumbers must always be licensed. This website lists state requirements: http://www.contractors‐license.org/index.html

All contractors should be qualified to perform the type of work being contracted for, such as electrical, plumbing, foundation, etc.

Contractor Estimate (Bid) Requirements

Send only one bid for each repair. We will not choose between two bids. When assisting the borrowers with obtaining a bid, give them a list of at least 3 contractors. Do not recommend a particular contractor. Bids must be legible and must include:

Contractor’s telephone number Clearly stated required repair items (itemized) Total cost for job If the bid is for structural damage, the bid must say whether or not the house will need to be jacked up or supported to do the work. If it must be jacked up or supported, the bid must say whether or not it is safe for the borrower to remain in the house during the repairs. When a structure requires jacking or supporting, the repairs must be completed prior to closing. The underwriter must determine if the structural, foundation, or soil pollution risk is acceptable to approve the loan.

Repair Set Aside Calculation

Prior to closing, the borrower must select the contractor who will be performing the repair work.

We calculate the repair set‐a‐side based on the bid selected. This should be the same contractor who will perform the work.

Repair set‐aside calculations range from 150% of the bid. There is a $2000 minimum set‐aside, although the bid may be lower than $2000. More details follow.


When we calculate the repair set‐aside, we include a compliance inspection fee of $100 for each inspection that we expect we will need.

We require repairs to be completed within six (6) months of closing If the repairs are completed without using all the funds in the set‐aside, we will transfer the remaining funds to a line of credit and tell the borrower how much we transferred.

If the cost of the repairs exceeds the amount initially set aside for repairs, the borrower must still have the required repairs completed. He or she may draw against a line of credit to cover the excess cost. This procedure might require a recalculation of the borrower’s payment plan.

Repair set‐aside requirements are calculated using the following formulas: Bid Amount Formula Minimum Balance Contractor’s bid multiplied by 1 1/2 times (150%) plus $100 OR Appraiser’s estimate multiplied by 3 times (300%) plus $100 up to $1500, anything over $1500 must have a contractors bid

Inspection of Repairs:

If your borrower is completing repairs before closing, a qualified individual must inspect the repairs before you can clear the loan for closing. If the repairs are completed after closing, then the property must be inspected before we will disburse all of the funds to pay for completed repairs. If the repair was identified by the appraiser, then in most cases that same appraiser should be able to inspect it. Other repairs, such as those identified by inspectors or termite companies, may require a HUD inspector, a professionally licensed, bonded, registered engineer, licensed home inspector or appropriately registered/licensed tradesperson. In some cases a statement from the termite company or other licensed professional certifying completion of the work may be accepted, but only when a statement from the borrower is also received stating that the repairs have been satisfactorily completed. Only in instances of minor repairs can the DE Underwriter waive the inspection by an appraiser or other professional and accept a mortgagee’s certification of completion of such repairs. These minor repairs must involve:

No technical skills No structural skills No knowledge

In these cases we would require a picture and a mortgagee certification using HUD‐92051. The homeowner cannot perform the inspection. The following people should use the Compliance Inspection Report, HUD‐92051:


Appraisers Fee inspectors

Other professionals may use their company’s forms and letterhead to make the certification.

Termite Guidelines Following HUD’s recommendations, we require termite reports only when they are required by the appraiser, or when the underwriter determines that a termite inspection is warranted. When a report is required, only structures that are given value must be inspected. If applicable, the termite letter should be on the state approved form:

If a state has its own form, it will include the words “State Mandated.” We are aware of the following states with their own forms: AL, AZ, CA, FL,GA, LA, MS, NC, SC, TX, and WA. (This list is not all‐inclusive.)

o On the CA report, only the repairs listed in Section 1 are required unless the underwriter determines otherwise.

Otherwise, use the Wood Destroying Insect Inspection Report (NPMA‐33). Termite letters are valid for 90 days only. If the borrower has an existing contract with a termite company, that company should provide the report. If the borrower is part of a Homeowner’s Association with an existing termite contract, that company should provide the termite report.

Termite Infestation

If the report lists active infestation, read about “Termite Damage” in the next heading to determine whether repairs are required in addition to treatment.

If there is active infestation, treatment is required: You may escrow for treatment in mild cases of infestation. You may not escrow for treatment if there is structural damage (read “Termite Damage” heading).

You may not escrow for treatment if there is severe active infestation, unless weather conditions do not permit treatment (frozen ground). The underwriter will decide when treatment is allowed after closing.

Treatment should be done using an EPA accepted system. Sentricon baiting systems are not acceptable.

Treatment Prior to Closing

The borrower should obtain the termite clearance report showing completed treatment.


The borrower may pay the termite company from the loan proceeds at closing. Payment must be disclosed on the HUD‐1.

Treatment After Closing

When treatment for termites is delayed until after closing, the set aside amount is calculated at 300% of the estimated cost listed on the termite report. This increased set aside amount is due to the opportunity for additional damage that would not be covered in the estimate.

All termite bids must be separate from any appraisal repairs. The termite company, engineer, or licensed contractor must conduct an inspection at the completion of the work.

Termite Damage

Only structural damage (and Section 1 items on California termite reports) must be repaired. Cosmetic repairs are not required. Structural damage must be repaired prior to closing. In most areas of the country, the following inspectors may determine whether the damage is structural:

the termite company’s inspector an approved fee compliance inspector a qualified home building inspector an engineer with expertise in structural related matter if the appraiser requests an inspection by a foundation expert rather than an engineer, this is acceptable. In the HUD Atlanta Homeownership Center (HOC), we do not accept a determination from the termite inspector of which damage is structural. Use one of the other inspectors listed above. The Atlanta HOC has jurisdiction over these states: Alabama, Florida, Georgia, Illinois, Indiana, Kentucky, Mississippi, North Carolina, South Carolina, and Tennessee. The professional who will perform the inspection must determine the degree of damage and recommend corrective action as necessary.


Flood & Hazard

Flood Certification and Insurance

The processor must order a flood certification for every loan. The certification must be for the “life of the loan,” showing our name and servicing address.

Flood Insurance

The flood certification determines whether flood insurance is needed, and if so, whether flood insurance is available. We will not accept the loan if the community related to the property does not participate in the Federal Flood Insurance.

If flood insurance is required: If the borrowers do not currently have flood insurance, they must obtain a new policy

If the borrowers must get new insurance, or increase their existing coverage, they must sign the flood insurance disclosure that is attached to the flood certification (called the “Notice to a Borrower in a Special Flood Hazard Zone.”) They must sign this form ten days prior to loan closing.

Adequate proof of insurance is required before the loan is cleared to close. The borrower must provide a copy of the declarations page showing the appropriate insurance coverage.

Flood insurance coverage is based on the appraised value minus the site value, or the maximum $250,000 flood insurance limit for the area.

The processors will change the mortgagee clause prior to closing. Flood insurance must be effective at the date of closing, and must be good through 180 days after the closing.

Manufactured homes must include a statement in the file from the appraiser that states the following: ”The finished grade elevation beneath the manufactured home or, if a basement is used, the lowest finished exterior grade adjacent to the perimeter enclosure, shall be at or above the 100‐year return frequency flood elevation”.

The HUD guidelines state specifically:

Insurance Amount Required. National flood insurance must be maintained in an amount equal to the least of the following: (1) the cost of the improved property (less estimated land costs); (2) the maximum limit of coverage made under the National Flood Insurance Act of 1968; or (3) the outstanding principal balance of the loan. Flood insurance is required for the term of the loan. If the buildings are located within a special flood hazard area (SFHA) and insurance under the National Flood Insurance Program is not available within a community, the property is not



eligible for FHA mortgage insurance. See HUD Handbooks 4150.1 and 4150.2 for additional information.

Condominium. The Homeowners' Association (HOA), not the individual owner, is responsible for maintaining flood insurance on buildings located within the special flood hazard area. If the FHA appraiser reports that buildings in a condominium project are located within a FEMA‐designated SFHA, the lender is responsible for ensuring that the HOA obtains and maintains national flood insurance on buildings located within the SFHA. The lender is not permitted to submit a LOMA, LOMR or elevation certification for any specific dwelling unit located within a newly constructed condominium project less than one year old.

Hazard Insurance Hazard Insurance is required on all loans.

Coverage requirements are different for condominiums. Read “Condo” heading before proceeding.

The policy must be effective at time of closing and paid through 90 days past the closing date. (the closing manager has the discretion to allow policies with a minimum of 60 days on a case by case basis)

A copy of the declarations page must be submitted to underwriting before the loan can be cleared to close.

The following items must be clearly and consistently indicated: borrower’s name, effective date, coverage amount, correct address, and mortgagee clause.

The processor can correct the mortgagee clause by letter. A copy of the letter in the file is adequate proof that the clause will be changed.

If the borrowers are paying for the increase in hazard insurance at the closing, we will typically collect a full year’s hazard insurance payment UNLESS the hazard insurance company states in writing that a smaller payment is acceptable.

If at any time after closing, the borrower does not maintain adequate insurance, World Alliance Financial servicing department, reserves the right to purchase a policy in the borrower’s name and hold him/her liable for payments on the policy (i.e. force place the insurance.).

https://owa012.intermedia.net/exchweb/bin/redir.asp?URL=https://owa012.intermedia.net/exchweb/bin/redir.asp?URL=http://www.allregs.com/ao/[email protected]

https://owa012.intermedia.net/exchweb/bin/redir.asp?URL=https://owa012.intermedia.net/exchweb/bin/redir.asp?URL=http://www.allregs.com/ao/[email protected]

Coverage Amounts Many of our senior borrowers have not updated their hazard insurance since they bought their home. Always check the hazard insurance coverage early in the loan process. For all products, the policy amount must be the least of the following:

Guaranteed Replacement Cost on dwelling o Note: Guaranteed Replacement Cost is an option on the insured's endorsement. If the amount of coverage is less than the minimum coverage required, then World Alliance will require this endorsement.

Appraised value minus the site value Estimated Cost New. The policy must be equal to 100% of the insurable value of the improvements as established by the property insurer. The acceptable deductible for single family housing is 5% of the face amount of the policy. The deductible for single family housing for wind‐loss/hurricane is 5% of the face amount of the policy. This is generally a special endorsement and is included with the policy. On some policies, the declarations page states that the coverage increases by a certain percentage each year to take inflation into account. We will accept this if:

The percentage is listed on the declarations page, and The increase is enough to bring the coverage to the required amount.

Mortgagee Clause The Mortgagee Clause for Hazard and Flood Insurance is: World Alliance Financial Corp. ISAOA/ATIMA P.O. Box 39218 Solon, OH 44139‐0218 Exception: For Alabama and Texas: WAF World Alliance Financial Corp. ISAOA/ATIMA P.O. Box 39218 Solon, OH 44139‐0218


The fax number for insurance policies is (440)505‐2008.

Title & Liens

Title Commitment

We require a title commitment that includes the following: Date of issue Correct vesting Property address Legal description of the property Tax search Liens Judgments Outstanding mortgages The title commitment is expired after 180 days. The vendor must issue a new and updated title commitment before closing.

Vesting

Vesting should be in fee simple and include only those eligible for and part of the reverse mortgage transaction. If it is not in fee simple, refer to the appropriate section for Life Estate or Leasehold below. Any non‐borrowers must be removed from title.

If we are removing anyone from title, the title company must verify the final vesting.

If vesting shows a Trust, or Life Estate, please read the appropriate heading. If vesting shows a deceased spouse or person on title, who we need to remove from title, a certified copy of the death certificate is required. This would include any person named in a trust who is deceased. Each state has different laws about removing deceased persons from title. The settlement agent/title company must state in writing that the deceased party can be removed from the title at the closing without probate.

Check for Non‐Borrowing Spouses and read that heading if needed. This applies whether the spouse is on title or not.

Homes vested in a Family Limited Partnership are not accepted.

Address

Property address and legal description must match the appraisal and Case Number.

Check for Leaseholds, Condominiums, and Planned Unit Developments.


Additional lots or acreage on the title that was not included on the appraisal should be removed from title. If the additional lots or acreage cannot be divided, an excessive land certification must be executed. Read the “Excess Land” heading.

Taxes, Liens and Payoffs All taxes, liens, judgments, and outstanding mortgages listed on the title must be paid off or removed from title commitment at closing. The only exception is a mortgage that is to be subordinated. Only community assistance liens can be subordinated. For more information, see “Subordination” and “Credit Report” headings.

Updated payoffs for all items to be paid at the closing are required before you can obtain a clear‐to‐close.

o Payoff should be within effective dates of payoff letter. o If the payoff has expired, we will require a letter from the closing agent

acknowledging acceptance of the per diem. o The payoff should be calculated at least 10 days past the expected funding

date. At a minimum, taxes due within the next 60 days must be paid prior to or at closing. The settlement agent and/or borrower may choose to collect to pay for more taxes at their discretion. If the title shows an existing HECM loan, see “HECM Refinance” heading.

Verification of Deposit In accordance with FHA and HUD guidelines 4235.1, Chapter 4 and 4155.1, Chapter 3, World Alliance Financial, is required to source all funds for any mortgage transaction where the borrower is short funds to close and must bring in funds to closing. (EPA and Simple 60 products adhere to FHA guidelines in this respect) In these cases, World Alliance Financial will require one of the following:

Verification of Deposit (VOD): This is a written request sent to a financial institution to verify the amount of monies available to the borrower(s). The VOD must support the required funds available over a two month period

Borrower’s original bank statements covering the most recent three month period, provided the bank statements show the previous month’s balance, the requirement would be met by obtaining the two most recent, consecutive bank statements,

A Gift Letter as described in the next heading.


Gift Letters If there is a gift letter, the transfer of the funds from the donor to the borrower must be documented. Acceptable procedures include:

Obtaining a copy of the donor's withdrawal slip or cancelled check, along with the borrower's deposit slip bank statement showing the deposit to the borrower's account.

In cases where the donor provides the funds in the form of a cashier's check, provide evidence that the funds used to purchase the cashier's check came from the donor. A withdrawal slip, specifically showing the donor's account number from which the funds were obtained, would be sufficient evidence, along with a copy of the cashier's check.

The loan file must also contain a gift letter specifying the following 10 items:

o The dollar amount o The name of the donor o The donor’s signature o The donor’s address o The donor’s telephone number o The donor’s relationship to the borrower o The names of the borrowers o The borrowers’ signature(s) o That no repayment is required o That the funds were not made available to the donor from any person or

entity with an interest in the sale of the property

Title Requirements for Title Insurance, Closing Agent/Attorney General Guidelines The title company and/or attorney “agent” is responsible for:

checking the title ensuring that World Alliance Financial (lender) has first lien priority ensuring that World Alliance Financial is provided the title commitment prior to closing

closing the loan disbursing the funds Recording the deeds or mortgages Copying and returning the loan package to World Alliance Financial within 24 hours after closing

After closing, the agent is responsible for:


providing World Alliance Financial with the recorded first and second mortgages Final title policy providing appropriate endorsements

All reverse mortgages must have, but are not limited to, the following endorsements:

6.2 Negative Amortization 8.1 Environmental Protection Lien (T‐36 in Texas) 9 Survey Exception Endorsement Reverse Mortgage/Line of Credit Endorsement (T‐43 in Texas) 5.1 PUD, if applicable (T‐17 in Texas) 4.1 CONDO, if applicable Reverse Mortgage Trust Mortgagor Endorsement, if applicable o Texas only: T‐19 Restrictions, Encroachments, Minerals, etc.

Texas ARMs only: T‐33 Adjustable Rate Mortgage

The following title policy is required:

ALTA form revised 1992 or short Form Title Policy as required by state law

Within 90 days after closing to: World Alliance Financial 3 Huntington Quad Melville, NY 11747 Attention: Final Docs

When disbursing the funds, the agent must pay all taxes that are liens on the property and all outstanding liens. The HUD‐1 Settlement Statement must accurately reflect all fees paid.

Surveys We require survey coverage at closing on every loan. This means that we will never allow any survey exceptions to remain on the final title policy. In most states, the title company will automatically provide this coverage without a survey. Typically, borrowers in Texas and Florida will need a survey in order to obtain survey coverage. Even in Texas and Florida, new surveys are not always necessary. In some cases, the borrowers had an old survey on file, and the title company accepted the old survey. In other cases, title companies provided survey coverage for condominiums without requiring a new survey.


The title company determines over whether to provide survey coverage without a new survey.

Special Circumstances

HECM Streamlined Refinance

Overview

The HECM Refinance is for borrowers who have an existing HECM loan and wish to refinance. This only applies to borrowers who have an existing HECM loan; borrowers who have another kind of existing loan (Home keeper or proprietary product) will obtain a HECM loan under the usual guidelines. Under this program, the borrower pays a lower MIP (Mortgage Insurance Premium). You must take care that the borrowers will receive enough money from the refinance to compensate for the additional origination cost including closing cost and to assure that the loan is not considered churning. Our policy is that the increase in the principal limit must be three times the cost of the new reverse mortgage, for the loan to be eligible.(for more information regarding HECM to HECM refinances, see internal policy Reverse Alert #2008‐02)

Other Servicers

Loans serviced by entities other than World Alliance are eligible for our streamlined refinance program. We will require the same information for all loans. Payoffs from other servicers should include all required information including the required default information.

Steps to Originating and Processing a Refinance

Applies to HECM product only

Unless stated otherwise, all requirements are the same as for other HECM loans. If possible, obtain these items from the borrower:

o Prior HECM Case Number o Prior HECM loan number o Last mortgage statement

Complete the HECM Refinance information in the Borrower’s Information Screen of the Reverse Mortgage Analyzer software before disclosing.

The borrowers must sign these additional forms at application:

o Anti‐Churning Disclosure o Special Refinance General Authorization o Refinance Analysis (this does not replace the Comparison)

Obtain the information about the existing HECM Loan:


o Obtain the Refinance Information Worksheet and fax it to the servicer. This will provide all necessary information including whether or not a default exists in taxes, insurance or repairs.

o Attach the Refinance General Authorization Form to your faxed request. o For Wendover (Wells Fargo), fax to: 336‐668‐4335 o For Seattle Mortgage (Reverse Mortgages of America), fax to: 208‐ 281‐5313

In FHA Connection, change the loan to a Streamlined Refinance as follows:

Change “Purchase” to “Refinance” Change “Was prior loan FHA Insured” To “Yes” Enter “Prior HECM Case Number” Leave the selection of streamline refinance type to “Not Streamlined”. (In this case the term streamlined refers to forward business.)

Waiver of Counseling for HECM Refinance Counseling must be completed on a HECM Refinance loan unless waived in writing by the Operations Center Manager. This is because HUD guidelines specify that to obtain a waiver of counseling:

The time between the closing on the original HECM that was refinanced and the application for this refinance may not exceed five (5) years, even if less than five (5) years have passed since a previous refinance, and

The increase in the mortgagor’s Principal Limit must exceed the total cost of the refinance by an amount equal to five (5) times the cost of the transaction. The Principal Limit is based partly on the appraised home value. At the time of counseling, the appraised home value is not yet determined. If World Alliance Financial waives the counseling and the appraised home value and Principal Limit are less than expected, the counseling would take place after the appraisal and would break the HUD guideline that requires counseling prior to the appraisal. In other words, an inappropriate waiver of counseling could cause the Seller or lender to incur a penalty.

Disqualified Borrowers

Loans Assigned to HUD


o When the loan balance on an existing HECM loan reaches 98% of the maximum claim amount, the loan may be assigned to HUD for servicing.

o If the loan has been assigned to HUD, the borrowers are not eligible for a streamline refinance with a reduced Mortgage Insurance Premium. This is because HUD is likely to make a claim on the mortgage insurance,

o However, the borrowers may obtain a traditional HECM loan and pay the full mortgage insurance premium.

Defaults

o If the borrowers are in default (for example, if they have not completed repairs in a timely fashion, or if they have failed to pay their property taxes or insurance) the item in default must be cleared prior to closing.

o If the default is not cleared, the loan cannot be closed and must be denied. o Past default status does not prevent a streamline refinance if such defaults

have been cured. o Borrowers who are currently in default may cure the default by obtaining a

traditional HECM loan and paying the full MIP.

Death Certificates We only require a certified copy of the death certificate if someone with ownership interest on the property (and named on the title) is deceased and needs to be removed from the title. This includes any person named in a trust who is deceased. Each state has different laws about removing deceased persons from title. The settlement agent or title company must state in writing that the deceased party can be removed from the title at the closing without probate.

Subordination Subordination means that a lender is taking third position to the HECM loan (behind World Alliance and HUD). HUD has been very clear regarding the creation of a new financial obligation in relation to the reverse mortgage transaction. Such transactions are NOT allowed. If the borrower does not have enough money to pay off existing debt, it is not permissible to create an additional lien. Current FHA policy permits an existing lien against the subject property to be subordinated if the following two conditions are satisfied.

1. The subordinate lien does not intervene between the first and second HECM liens. It is the mortgagee’s responsibility to ensure that the first and second mortgages


are the first and second liens of record, and that other liens do not intervene between the first and second mortgage.

2. A lien against a HECM borrowers property, which is subordinate to the FHA‐insured HECM first and second liens, cannot arise or be connected with obtaining a HECM loan. FHA regulations at 24 CFR 206.32(a) provide that there shall be no outstanding or unpaid obligations incurred by the HECM borrower in connection with the HECM transaction. Once a HECM loan is endorsed, however, the HECM mortgagor is not restricted from seeking a home equity loan, or engaging in another type of real estate financing transaction which would require an additional lien to be subordinated to the HECM first and second liens.

To get a lien subordinated:

Prior to closing the subordination agreement must be executed by the subordinating lender and reviewed and approved by the underwriter. There will also be a 2nd review by World Alliance compliance department. Since the loan amount on the reverse will grow, we prefer they do not list an amount to which will be subordinated, however if an amount is listed it must be equal to the recorded deed amount. The subordinating lender must state that they will take a third lien position behind the reverse mortgage and that they understand that a reverse mortgage is a negative amortization loan. In all places where a lender is referenced, it must reference “World Alliance Financial, its successors and/or assigns as their interest may appear and the Secretary of Housing and Urban Development.”

If a loan is closing in the brokers name, then it should read “(Brokers full name) its successors and/or assigns as their interest may appear and the Secretary of Housing and Urban Development.”

Multi Family 2‐4 Units

General Guidelines If the appraiser indicates that the property is multifamily, follow these requirements:

Case number must have correct number of units Property may not exceed four (4) units Borrower must sign “Hotel/Transient Use Certification” HUD 92561 certifying that they are not using the property as a hotel. The form can be signed at closing.

We will still calculate loan proceeds using the single‐family lending limit.


Unlike other FHA multi‐family homes, the borrower must remain in the home for the life of the loan.

Multi‐family Appraisals Appraiser must use the 1025 Small Residential Home format. Major differences include:

o Sales comparable section remains, but comps must be multi‐family. o New Comparable Rental Data section uses different comps (if possible) to

show potential income from renting units. o Subject Rent Schedule section shows how much rent each unit is taking in.

Well and Septic The appraiser must state if public water and sewer are available. If public utilities are available then hook up is required. The only exception is if the hook up cost exceeds 3% of the value of the property. Underwriting will waive this requirement with a written statement from the borrower requesting a waiver and a copy of the contractor bid to show that it exceeds 3%. The bid must include the tap fee. Unusual sewage disposal systems (cesspools, etc.) are acceptable if they are allowed by county guidelines. All wells must be drilled wells at least 20 feet deep with a casing—dug wells and spring fed wells are not allowed by FHA. The well must meet state and local standards, and may not be less than 50 feet from any source of pollution . HUD requires well tests under certain circumstances (such as corroded plumbing, unusual taste or odors, or nearby hazards such as dry‐cleaners or intensive agriculture). Typically, the underwriter will only require a test if it is specifically recommended by the appraiser. All test samples should be taken by a state‐certified private laboratory or their designee in accordance with the state drinking water regulations. If the well test says that the water is not “potable” this means that the water is not safe to drink. The appraiser does not automatically have to list the distances between the well, septic tank, property line, etc. If the appraiser states the distances or shows them on the sketch, it must meet HUD guidelines. HUD guidelines are as follows:

For existing properties, FHA requires that a domestic well be located a minimum of 100 feet from the septic tanks drain field and a minimum of 10 feet from any property line. Should state or local regulations require greater distances, those distances must be met.

If, however, the locality permits distance requirements less than those prescribed by FHA, the property may be considered eligible for a mortgage insured by FHA provided that the lender submits evidence in the case binder that the subject property is in compliance with the applicable local or state distance requirements and meets the conditions stated


below. Therefore, waivers from the Homeownership Centers (HOCs) will no longer be necessary for properties meeting these distance requirements:

• Domestic Well from Septic Tank Drain Field: FHA will recognize state/local distance requirements provided they do not allow for less than 75 feet of separation.

• Domestic Well from Property Line: FHA will recognize state/local distance requirements provided that the well is not within 10 feet of any roadway or the property line of other than a single‐family residential property, i.e., the well cannot be within 10 feet of a commercial, industrial, or multifamily building.

**Exception: For properties located in Michigan only, HUD has granted a general waiver on existing properties. The general waiver will permit a reduction in the distance required between the well and the drain field from 100 feet to 50 feet. However, the appraiser should comment if the well appears to be too close to a potential source of contamination. A septic inspection is required only if there is evidence of system failure, if it is mandated by state or local jurisdiction, if it is customary to the area, or at the underwriter’s discretion. Shared wells or shared septic systems must have recorded agreements between all parties that meet FHA guidelines and must be approved by the local authority. More than four houses cannot use the same shared well. The borrowers must submit a copy of a state or county permit or license for community wells. Further testing of community wells is not necessary. If the water is not potable, the borrowers may not escrow for the installation of a new well (it must be done prior to closing). A currently working septic system that must be moved to meet local guidelines may be moved after closing using a repair set‐a‐side.

Heating

Oil Tanks

If there is an underground oil tank, check to see if the appraiser requires a test to see if it is leaking (tests are no longer automatically required). Testing can be done using several different methods and can be done by the heating company the oil company, or local authority. A letter must be submitted stating that the tank was tested and is not leaking. If the oil tank is leaking, then the condition must be corrected prior to closing the loan per EPA Standards. The appraisal (or survey) must indicate the location of the oil tank on the sketch addendum.


Space Heaters

Houses served by space heaters must be inspected to determine if the heaters are installed properly per local fire department code. The appraiser must state that this type of heat is typical and adequate to heat the entire house.

Wood Stoves & Unusual Heat Sources

Dwellings with wood burning stoves or solar systems used as a primary heat source must have permanently installed conventional heating systems that maintain at least 50 degrees Fahrenheit. We no longer require an inspection unless the appraiser or underwriter specifically requests one.

Flat Roofs Inspections of flat roofs are no longer automatically required. However, if the appraiser notes a problem that requires additional inspections or if the underwriter identifies an issue from the photo, an inspection may be required.

Agricultural Land and Excess Land

“Excess land” is land that was not included in the value of the property on the appraisal.

Agricultural Land (Farms) Agricultural zoning does not necessarily indicate excess land. It also does not automatically disqualify the property because of its zoning. However, the property must still be considered a residence, and not a farm. The underwriter will review the appraisal to determine whether the property is a residence or a farm.

Double Lots and Excess Acreage FHA requires any acreage or lots not included in the value to be removed from the title. Appraisers must determine the amount of the land that should be included in the value when a house includes excess acreage. The appraiser relies on what is typical for the area. There is no specified upper limit on how much acreage is acceptable; however the underwriter will make the final determination for additional lots or properties including more than five acres. Large properties must meet the following guidelines:

Zoned and used as residential property (no commercial use, including income‐earning farms).

Must be common for the area (supported by similar and proximate comparable properties. Additional lots may only be included if they meet at least one of these requirements:


o Contiguous and included on the legal description o Contiguous and taxed as one parcel o Includes amenities such as septic tank, well, garage, etc. which contribute

to the marketability of the property o Removal of parcel would limit access to public roads if the property has

excess land that does not meet the above requirements, it cannot be included in the property value. The borrowers must sign the Excess Land Certification. They will indicate whether they want to encumber the excess land with the reverse mortgage or deed it off separately. If encumbering the land, no further action is required. If deeding off the land, a survey will be necessary and the land must be removed from the legal description. Land may not be removed if its removal would limit access to public roads or wells/septic tanks. The only exception is if the lot cannot be subdivided. A letter from the county would be required.

Tribal Land Properties may not be located on tribal (Native American or Indian) land. Unique Properties Unique properties, such as octagonal houses, waterfront homes or homes in an extremely remote location will be considered on a case‐by‐case basis. The appraiser must be able to provide comparable properties that meet the guidelines in the “Sales Comparison Approach Section” heading on page 19. (For comp requirements, refer to the Sales Comparison Approach Section heading on page 19.) Before taking the application, we may wish to check with the appraiser to see if comps are available.

Private Roads and Shared Driveways Each property must be provided with vehicular and pedestrian access by a public or private road. If the property is serviced by a private road or private driveway then the road must meet these criteria:

Must be protected by permanent recorded easement or ingress/egress shown on deed.

Maintenance agreements are no longer required.

Power of Attorney A Power of Attorney has the right to sign for and make decisions for the borrower.


POA Document

The power of attorney documents must meet certain requirements: Durable (continues in effect if the borrower becomes incompetent)

o Note: Power of Attorney in the state of Louisiana is automatically durable as per the state civil code.

Give the right to encumber the property Revocable Executed by a competent borrower **If the POA is executed less than 6 months from the date of the application, we will require a doctor’s letter confirming competency.

If the borrower signed the application via a POA, the POA must have been executed and dated prior to the date of the application.

The title company must confirm in writing that they will be able to close the transaction using this power of attorney and that the POA paperwork meets state guidelines.

Application, Counseling & Competency

The Loan Officer must confirm the POA’s identity and Social Security Number using the Customer ID Certification (an application document).

The individual acting as Power of Attorney must attend counseling If the borrower is competent, the borrower must sign the initial application (1009) and attend counseling.

If the borrower is incompetent: The POA must provide proof that the borrower is incompetent. This

is typically a doctor’s letter explaining the nature of the incompetency and when it began.

The borrower must have executed the power of attorney when the borrower was still competent.

Cases where the borrower is competent to understand the loan, but is physically unable to attend counseling, will be decided on a case‐by‐case basis by the underwriter. Whenever possible, the borrower will be required to attend counseling. TTD counseling is available for deaf borrowers.

Signing

The power of attorney must sign all loan documents and attend counseling and the closing.

On the application and closing documents, the POA’s signature must follow the guidelines laid out in the POA document. A typical example:

o “[Borrower’s full name] by [POA’s full name] as Attorney in Fact.” That is, “Jane Smith by John Doe as Attorney in Fact”


At Closing

At closing, the power of attorney must certify that the borrower is alive and that that the power of attorney is in effect.

Guardian or Conservator A Guardian (called a Conservator in some states) is appointed by a court to protect the borrower’s interest because the borrower has become incompetent and has not written a durable Power of Attorney.

Guardianship Document

You must send the following documents in the file if the borrower has a guardian: A copy of the court order appointing the person as guardian or conservator. A court order to state that the court approves the loan transaction for a HECM reverse mortgage.

o The words “reverse mortgage” and/or “adjustable rate, negative amortized loan” must be included in the court order

o The court order must be signed by the judge. o Do not include any interest rate or loan amount in the court order. If an

interest rate is listed, it must be state as an "initial rate" noting that it is an adjustable rate for a negative amortized loan. If a loan amount is listed it must not be less than the recorded deed amount, which equals one and a half times the maximum claim amount.

If the property is in a trust, the court order will also need to authorize the trustee to act on behalf of the trust.

Application, Counseling & Competency

The Loan Officer must confirm the Guardian/Conservator’s identity using the Customer Identification Certification (an application form).

The Guardian/Conservator must attend counseling. Since the borrower is incompetent, he or she does not have to attend counseling.

LDP and GSA

You should check LDP and GSA for the Guardian/Conservator, just as if for the borrower. Read LDP/GSA heading for instructions.

Signing Documents

On the application and closing documents, the guardian’s or conservator’s signature must follow the guidelines laid out in the Guardianship Documents. A typical example: “[Borrower’s full name] by [Guardian’s full name] as [Guardian/Conservator].”


That is, “Jane Smith by John Doe as Guardian” Or, “John Smith by Jane Jones as Conservator”

Living Trusts This section discusses trust requirements for HECM.

General Trust Guidelines

Loans cannot close in a trust in Texas. Trusts must meet the following guidelines:

o It is World Alliance policy to never suggest or recommend removal of the

borrower’s property from a trust. o If the trust does not meet our requirements, you should only tell the

borrower in what way the trust does not meet our requirements. o If the home is put back into a trust after closing, the trust must meet the

same requirements that it must meet before closing. o If the borrowers are removing the property from the trust, they will need to

sign the Trust Acknowledgment stating that they understand this. o Trust must be revocable

The trust must be recorded and accurately shown in the vesting on the title commitment.

Hazard Insurance should be in the borrower’s name or in the same name in which the title is vested.

A Trust Acknowledgement should be sent to World Alliance by the Title Company if the borrower intends to convey title from a Living Trust prior to closing and/or they intend to convey title to a Living Trust after closing.

Revocable Trusts

Trusts must be revocable. A revocable trust is one that: o An individual created during his or her lifetime, o Becomes effective during its creator’s lifetime, and o Can be changed or cancelled by its creator at any time, for any reason,

during that individual’s lifetime. The revocability of some trusts may change on the death of one borrower. If the trust becomes completely irrevocable upon the death of one borrower, it is not eligible. If the trust becomes partially irrevocable upon the death of one borrower, the property must remain in the revocable part of the trust.

Irrevocable trusts are not acceptable on any of World Alliance Reverse Mortgage products.


Beneficiaries

The borrowers must be the primary beneficiaries of the trust. They cannot be the residual or alternate beneficiaries. For more information, go to http://www.lealzoom.com/law_library/living_trust/distributions.html

Obtain a Copy of the Trust

The trustee is under a fiduciary responsibility to hold and manage the trust assets for the beneficiary. The trustee’s responsibilities are set out in a trust agreement.

A complete copy of the “Declaration of Trust” or “Trust Agreement” must be submitted to the underwriter and the title company with all amendments and schedules.

California loans: o California Probate Code Section 18100.5 provides a means by which the

trustee(s) of a trust can provide a certification of trust in lieu of an actual copy of a trust agreement to a third party who is contemplating entering into a transacting with the trust.

Trust Approval

For all reverse mortgage products, the eligibility of a property held by trust is subject to review and approval of the trust by the World Alliance Legal Department AND the title company.

The processor will submit the trust to title company with the title order. The legal department will not review trusts early except in unusual circumstances. If the trust is acceptable to the title company, the title company will issue a special title endorsement.

If the title company (or if necessary, World Alliance outside legal counsel) does not approve the trust, then the loan is not eligible for approval to close.

Trust Items Signed at Closing

The borrower(s) may or may not be the trustee(s) of the trust. The trustee(s) must sign the mortgage deeds at closing but do not execute the loan agreement. The borrowers must sign the mortgage deeds and all other loan documents. If the borrower(s) and the trustees(s) are one in the same, they must execute the mortgage deeds as both (trustee and borrower).

An amendment to the trust must be executed at closing.

Trusts with POAs or Conservators

If the borrower wants to use a Power of Attorney in combination with a trust, the closing agent must approve the use of a POA with a trust. More requirements apply for a POA. See “Power of Attorney” heading.


On conservator trusts, the loan must be acknowledged by the courts. Other requirements for conservators may apply. See “Conservator” heading.

Leasehold A, leasehold occurs when the land is not owned by the borrower but by another party under a lease agreement. The underwriter will review the lease to ensure that it meets FHA guidelines.

The mortgage must be on the property held in fee simple, or under a lease for not less than 99 years that is renewable, or under a lease having a remaining term of not less than 50 years beyond the 100th birthday of the youngest borrower.

There are specific requirements for the appraisal of leaseholds. The guidelines can be found on the HUD Handbook 4150.1 and 4150.2. The comps should also be leaseholds and information at the time of the appraisal report.

FHA no longer accepts recreational leaseholds.

Life Estate A life estate is an interest in real property allowing the owner of the life estate to use the property during his or her lifetime. On the death of the owner of the life estate, his or her rights in the property cease, leaving a fee simple title to the property in the holders of the future interest in the property.

Under FHA regulations at 24 CFR section 206.35, if a HECM borrower holds a life estate in the property that will serve as the security for the FHA‐insured HECM, persons with a reversionary or remainder interest in that property also must execute the HECM mortgage. The referenced “reversionary or remainder interest” is an interest in the real estate that will serve as the security for the FHA insured HECM. At closing, the borrower and all holders of any future interest in the property must execute the deed of trust, riders, and rescission. Holders of future interest do not execute the note or loan agreement.

Loans cannot close in a life estate in Texas.

Non‐borrowing Spouses It is World Alliance Financial, policy never to suggest or recommend the possibility of removing someone from title. According to the terms of the mortgage, it is not possible to add someone to the title after the closing. Doing so may cause the loan to come due. World Alliance may perform title searches after closing to confirm that the title is still vested as it was at closing. World Alliance requires the following from a non‐borrowing spouse, including both homestead and community property states:


If a spouse is being removed from title in conjunction with the loan transaction, World Alliance recommends that the borrowers obtain an attorney opinion letter from the borrowers’ attorney supporting that decision. The attorney’s fees must be paid outside of closing and outside of the loan transaction.

FHA and World Alliance also require the non‐borrowing spouses to attend counseling.

In homestead or community property states, a Customer Identification Certification is required for the non‐borrowing spouse

The borrower and non‐borrowing spouse must sign the "Non‐ Borrower Spouse Ownership Interest Certification" form at loan closing.

The Non‐Borrowing Spouse Ownership Interest Certification replaces all previous forms, including the Homestead Advisory and Divestiture of Interest forms.

In signing this form the non‐borrowing spouse acknowledges that he/she is aware of the possibility they may be required to vacate the property in the event of the borrower's death or inability to occupy the property.

The non‐borrower spouse may rescind the loan under the same guidelines as the borrower.

Because each state's laws are different, (e.g., with some states having community property laws and others having homestead laws) underwriting will condition the Title Company's representative to obtain information regarding any and all state specific documents that must be executed. The proper documents must be executed to ensure that any rights of the non‐borrowing spouse have been properly extinguished.

Typically this will mean that in addition to the “Non‐Borrower Spouse Ownership Interest Certification,” the spouse will have to sign the deeds, riders, Notice of Right to Cancel, and Truth‐in‐Lending form at closing.

On Florida properties subject to homestead, the spouse must sign the deed at closing AND be listed on the deed as a party to the transaction. Not all properties in Florida are subject to homestead. The title company can verify whether it is a homestead property.

For state of California, if we get an interspousal transfer deed executed, we do not need the deeds/rescission or TIL signed.

The Closing Instruction Letter will include instructions to the Title Company requiring the preparation and execution at closing of the necessary state specific documents.

Important: If any instrument extinguishing the non‐borrowing spouse's interest must be recorded under applicable state law, then this instrument must be recorded before the new Mortgage or Deed of Trust is recorded.


Legally Separated Spouses HUD guidelines do not clarify whether or not a HECM loan can be made if the borrower and his or her spouse are legally separated. Until HUD clarifies this, we should obtain a notarized written statement from the non‐resident spouse covering these points:

o That the parties are separated and have been since _______________ [the period should be no less than 1 year] and their separation is permanent.

o That the parties do not share marital or community property and live separate and apart.

o That the non‐resident spouse does not live in the proposed security property and has no claim to such property.

o That the non‐resident spouse acknowledges that the proposed security property is the separate property of the resident spouse.

o That the non‐resident spouse acknowledges and consents to the proposed reverse mortgage transaction.

We continue to require the non‐borrower spouse ownership certification from the nonresident spouses.

Counseling will not be necessary because we are documenting that the non‐resident spouse has no interest in the property

Planned Unit Development – PUD A PUD is a community that requires the homeowner to pay a mandatory fee for the maintenance and use of common areas.

At closing, the borrower will sign an additional form called the PUD rider. Check the title commitment to be sure that the development is not recorded as a condominium instead of a PUD. If it is, see “Condominiums” heading.

The title company should confirm there are no unpaid dues or assessments. If the roads are private, the association should include a certification that they own and maintain the roads.

Modular and Manufactured Homes

Modular Homes

If the home is a modular home, not a manufactured home, the manufactured home guidelines do not apply. A modular home is different from a manufactured home.


In a modular home, the trailer is not a structural part of the home; weight is supported by exterior foundation walls and has an official state label indicating acceptance under the state program. The underwriter will require documentation that this is a modular home. If it is a modular home, there are no other requirements.

Definition of a Manufactured Home(Mobile Home)

A manufactured home is a structure that is transportable in one or more sections, a trailer is a structural part of the home, weight of home is on one beam, and it contains an affixed HUD seal.

Guidelines for Manufactured Homes

For a HECM loan, the home must: Not be located in a condominium association Have a floor area of not less than 400 square feet Be constructed after June 15, 1976 Not be installed or occupied previously at any other site or location Be classified and subject to taxation as real estate Be built and remain on a permanent chassis Have axles and tongue removed Have permanent utilities installed Have permanent skirting around perimeter Additions to manufactured homes must meet county requirements and HUD’s requirements.

Have the finished grade elevation beneath the manufactured home or, if basement is used, the lowest finished exterior grade adjacent to the perimeter enclosure, shall be at or above the 100‐year return frequency flood elevation; see “Flood Certification” heading.

Be designed to be used as a dwelling with a permanent foundation built to FHA criteria. Foundation must be inspected by a licensed engineer prior to the appraisal to confirm that it meets the guidelines in the PERMANENT FOUNDATION GUIDE FOR MANUFACTURED HOUSING, HUD‐007487 and HUD Handbook 4145.1 Rev 2. To order a Permanent Foundation Guide, call (800) 245‐2691. Foundation inspection must be submitted to the appraiser when ordering the appraisal Foundation inspection must be less than six months old. Contain an affixed HUD tag or data plate; appraiser must show the tag’s serial number on the appraisal.

o To find the HUD tag (label), stand outside and face the tow end of the trailer. Walk around to your right, so that you’re looking at the long side of the home. The tag should be about one foot up, and one foot in from one end. (Sometimes HUD tags are moved.)


o If the tag is missing, find the HUD data plate in the interior of the home. It will be in one of three places: on or near the main electrical panel, in a kitchen cabinet, or in a bedroom closet.

o If the home is in several sections (a double‐wide, etc.) it should have a seal for each section.

o If HUD seal is missing, or if you would like to see a picture of the data plate or tag, go to this website: http://www.hud.gov/offices/hsg/sfh/mhs/mhslabels.cfm

Manufactured Home Appraisals

Appraisals for manufactured homes must be on the 1004c format for manufactured homes.

Major differences from other appraisals include:

o At least 2 comps must be manufactured (even if outside neighborhood) o Spaces to fill in required HUD data as discussed above. o Spaces to discuss additional modifications and improvements

Condominiums and Co‐ops

Definitions A condominium, or “condo,” is a type of joint real estate where each housing unit is individually owned and all residents collectively own the common areas of the building. Owners may have exclusive use of certain limited common areas. Common areas can include grounds, lobbies, elevators, hallways, surrounding property, and recreational facilities. A co‐op is a co‐operatively owned apartment building. Instead of owning real property, your borrowers own a long‐term lease and the right to sole and exclusive use of an apartment for an indefinite period.

Co‐Ops

Co‐ops are not acceptable under the HECM guidelines. They may be acceptable in some States for certain Proprietary products. Not available for EPA at this time.

General Condo Guidelines

In order to be eligible for a reverse mortgage, the condo must meet these requirements: For HECM loans, eligible condominiums must be part of a HUD‐approved condominium project (refer to HUD Handbook 4265.1).


If the condo is not approved on the FHA Connection, you may use a Spot Condo form. (for more information on Spot Condo Affidavits see section below or refer to Reverse Mortgage Alert # 2008‐04)

Remember to check the Title Commitment for Recreational Leases. These are no longer acceptable for FHA loans.

Homeowners Association must provide a copy of the blanket insurance policy Declarations, page to show that they have the correct coverage.

o The declarations page must be for the master policy that covers all of the buildings in the condo association.

o Condo coverage must include full replacement coverage for the buildings and liability of $1,000,000

o The condo coverage is usually handled by the homeowners’ association. A certificate of insurance is issued in the borrower’s name with the unit number shown on the certificate, and the mortgagee clause.

Condominium The Homeowners' Association (HOA), not the individual owner, is responsible for maintaining flood insurance on buildings located within the special flood hazard area. If the FHA appraiser reports that buildings in a condominium project are located within a FEMA‐designated SFHA, the lender is responsible for ensuring that the HOA obtains and maintains national flood insurance on buildings located within the SFHA. The lender is not permitted to submit a LOMA, LOMR or elevation certification for any specific dwelling unit located within a newly constructed condominium project less than one year old.

If a termite inspection is required, and the borrower is part of a Homeowner’s Association with an existing termite contract, that company should provide the report. See Termites heading.

FHA does provide strict guidelines regarding the amount required in reserves. A condo may not have ‐0‐ reserves and still be eligible for the spot condo approval. If the reserves are ‐0‐ or look low, send a copy of the association’s budget for this year and the previous year. Also send maintenance schedule so that we can assess how the project has handled major repairs when they have become due for repair. The underwriter determines how far back the maintenance schedule should go. Two years is typical, but the underwriter may call for five years or even more depending on the situation.


Condominium Appraisals

Appraisals for condos must be on the 1023 appraisal format. Appraiser must supply remaining economic life. Appraisers frequently forget to provide this information.

Extra spaces include: o The project’s amenities (land, parking, pool, etc.) o The condo building (number of floors, units, elevators, etc.) o Occupancy o Budget and fees

Comparables should also be condos. For properties in established subdivisions, or for units in established condominium or PUD projects that have resale activity, the appraiser should use comparable sales from within the same subdivision or project as the subject property if there are any available. Resale activity from within the subdivision or project should be the best indicator of value for properties in that subdivision or project. If the appraiser uses sales of comparable properties that are located outside of the subject neighborhood, he or she must include an explanation with the analysis.

For properties in new subdivisions, or for units in new (or recently converted) condominium projects, the appraiser must compare the subject property to other properties in its general market area as well as to properties within the subject subdivision or project. This comparison should help demonstrate market acceptance of new developments and the properties within them. The comparable selection should include at least one sale outside the subdivision or project and one sale from within the subdivision or project. The third sale may be either. Appraiser must supply remaining economic life. Appraisers frequently forget to provide this information if they use the condo form.

Spot Condo Approval

You may get individual units in condominium projects approved even if the whole association community isn’t approved. The project must meet the requirements on the spot condo form, as well as the following requirements:

Each program has its own spot condo form. Be sure to use the most recent forms. Outdated forms may not strictly comply with FHA, and they will not be accepted.

Spot condo form must be completed and signed by an authorized person from the Homeowners Association (cannot be the borrower).

Large associations may write “unknown” in the question on the FHA spot form that indicates number of FHA loans in the association.

Any modification to answers on the Spot Condo Affidavit is unacceptable. By signing the form, the association’s representative is certifying that the condo meets


all requirements. A “false” answer means the project is ineligible for “spot” approval.

If the association charges reasonable and customary fees for a certification, the fees may be charged to the borrower.

If there is litigation described on the approval form or the appraisal, the loan won’t be approved until the litigation is resolved.

o The only way to get an exception to this rule is to have the association apply directly to HUD for full approval. If the association receives that approval, then we can usually accept the loan.

For more information regarding Spot Condo Approvals, see Reverse Mortgage Alert #2008‐04)

HUD Approved Condos

Applies to HECM product only Some associations are already approved by HUD, and units in those associations do not require spot approval.

The loan file must have a printout from FHA Connection with condo approval and ID number. Verify the lot number, building number or phase to ensure that we received the correct approval. When checking for HUD approval, carefully follow these instructions:

To find a HUD‐approved condominium: Log on to the FHA Connection at https://entp.hud.gov/clas/ and click “Sign On.” Enter your user name and password and log in. You will be on the FHA Connection page.

o If you do not have a user name and password, contact the compliance department to obtain a login.

From the FHA Connection page, click Single Family FHA From the Single Family FHA page, click Single Family Origination From the Single Family Origination page, click FHA Approval Lists From the FHA Approval Lists page, click Condominiums Click on the Condo Name and enter the name of the condo Enter the borrowers zip code


At the bottom of the screen is a pull down list, make sure you choose, “all” in the pull down menu (this selection will give you all condo’s that are approved, denied, withdrawn )

Click send o The condo must be approved in order to use this approval method. In

addition, many condos have numerous phases and all phases must be approved, so in order to use this method, the particular phase must be available in the FHA connection. If the condo association does not exist in the FHA connection, then the Spot Approval process must be used.

If approved the page must be printed and included in the loan file for submission to underwriting.

Right of First Refusal Permitted for Condos

A right of first refusal is usually present in “senior living communities,” such as those that prohibit occupants who are younger than a certain age. These associations have the right to buy the home (or refuse to buy it) before it is offered for sale to someone else. These condo associations usually are not accepted on an FHA loan. For the HECM loan only, HUD has removed this restriction, and homes in a “right of first refusal” association are eligible for the HECM loan.

Recreational Leases for Condos

A Recreational Lease is a lease of the common areas (club house, pool, tennis courts, etc.) held by an outside party. We will not accept recreational leases of any kind, including leases in Century Village. HUD will not insure a loan with a recreational lease. Condominium Property Regimes (CPRs) in Hawaii World Alliance Financial will accept CPRs in Hawaii that are nonagricultural, subject to underwriter approval. (For example, the underwriter will review the file to make sure that any Homeowner’s Association is solvent and not involved in a lawsuit.) At this time, agricultural CPRs are ineligible.


Glossary of Terms 203‐b Limit • in the federally‐insured HECM program, the capped loan amount for each county; limits how much of a home’s value can be used to determine a borrower’s loan advances AARP Web place • an Internet Web site featuring detailed information on reverse mortgages at www.aarp.org/revmort Acceleration Clause • the part of a contract that defines when a loan may be declared due and payable Actuarial Risk • uncertainty about how long borrowers will live Adjustable Rate • an interest rate that changes, based on changes in a published market‐rate index Adjusted Property Value • the lesser of the appraised value of a property and the Lending Limit; this value is used in calculating the borrower’s Principal Limit Annuity • a monthly cash advance for life from an insurance product Appraisal • an estimate of a home’s market value Appreciation • an increase in the home’s value Area Agency on Aging (AAA) • a local or regional nonprofit organization providing information on services and programs for older adults American Association of Retired Person (AARP) • a national organization providing information on services and programs for older adults Automated Valuation Model (AVM) • provides the borrower with an estimate of the current market value for the borrower’s residential property, thereby providing a loan expectation to the borrower. AVMs derive a value estimate by running property and area sales information (such as square footage, lot size, and sales price) through statistical and mathematical models and are updated on a regular basis to provide the most accurate estimates available. These reports can be obtained through various sources. We currently only require them for our EPA(Equity Plus Advantage) product, however underwriting can utilize them on HECM loans to help support the value. Cap • a limitation on the amount by which an adjustable interest rate may change during a specified time period CHUMS • another name for the FHA Connection, which is most commonly used to order FHA Case Numbers Closing • a meeting at which legal documents are signed to “close the deal” on a mortgage Core Logic • vendor that supplies the Automated Value Model, which is only required on our EPA (Equity Plus Advantage) product. CRA • Community Reinvestment Act passed by Congress in 1977 which mandated that:


Regulated financial institutions are required by law to demonstrate that their deposit facilities serve the convenience and needs of the communities in which they are chartered to do business. The convenience and needs of the communities include the need for credit services as well as deposit services. Regulated financial institutions have a continuing and affirmative obligation to help meet the credit needs of the local communities in which they are chartered. Credit Line (Line of Credit) • a payment plan that permits a borrower to control the timing and amount of the loan advances Current Interest Rate • the interest rate currently being charged on a loan. Calculated using an index and a margin (see margin). On the HECM, the index is the one‐year rate for U.S. Treasury Securities. On the Home Keeper, the index is the one‐month Certificate of Deposit (CD). On the EPA (Equity Plus Advantage) loan, the index is the LIBOR index. Default • a breach or nonperformance of the terms of a mortgage loan; defaults under a reverse mortgage could include failure to repay loan after a repayment notice has been issued, failure to maintain property, and failure to pay property taxes and/or hazard insurance Depreciation • a decrease in the value of a home EPLS • Excluded Parties Listing System (see also the GSA lists heading in the Processing Section) ECOA • Equal Credit Opportunity Act passed in 1974, better known as Regulation B, prohibits discrimination against consumers during any aspect of a credit transaction based upon a prohibited basis such as race, color, religion, national origin, sex or marital status, or age (provided the applicant has the capacity to contract and providing the applicant is of an age that meets the underwriting requirements for the reverse mortgage product); all or part of an applicant’s income derived from a public assistance program; or the applicant has exercised any right under the Consumer Credit Protection Act Expected Interest Rate • the interest rate used to determine a borrower’s loan advances. In the HECM program, this equals the 10‐year rate for U.S. Treasury Securities, plus a margin (see margin). The expected rate for the Home Keeper is the same as the current interest rate. Fair Credit Reporting Act • Congress passed FCRA in 1970 due to increasing concerns that there was a huge database of information on consumers that (1) the Companying system depends on, (2) contained incorrect information which caused unjustified denials of loans, jobs or insurance policies, and (3) was not open to inspection and correction by the people whose payment histories and other records were stored there Fair Debt Collections Practices Act • passed to ensure that loans in the collection process were handled by collectors in a fair and non‐discriminatory manner. The Act prohibits certain practices to ensure borrowers are not harassed and “strong‐arm” tactics. It requires specific disclosure of information and limits access to the borrower as an attorney is involved. Loans that fall under this law are those where either a collector other


than the servicer is performing the collection process or the loan was purchased in a stage of default. FAND • First American Nationwide Documents; the document preparation company that supplies some application documents Fannie Mae • A private company that buys and sells mortgages a government‐sponsored entity that operates under the general oversight of the federal government. A Reverse Mortgage investor for HECM and Home Keeper loan products Federal Housing Administration (FHA) • part of the U.S. Department of Housing and Urban Development (HUD); Issues insurance to lenders for FHA products such as HECMs Federally‐Insured Reverse Mortgage • a Home Equity Conversion Mortgage (HECM) FHA • see Federal Housing Administration FHA • Fair Housing Act (Title VIII of the Civil Rights Act of 1968) prohibits discrimination in all aspects of “residential real‐estate related transactions” based upon race, color, religion, sex, familial status (including children under the age of 18 living with parents or legal custodians; pregnant women and people securing custody of children under 18), disability, or national origin. Geo AVM • see Automated Valuation Model HMDA • Congress enacted the Home Mortgage Disclosure Act in 1975 and implemented by the Federal Reserve Board’s Regulation C. HMDA provides that loan data be made public to assist in dispersing public‐sector investments in order to attract private investments to areas where needed and to assist in determining whether financial institutions are meeting the needs of their communities. Home Equity • the value of a home, minus any debt against it Home Equity Conversion Mortgage (HECM) • turning home equity into cash without having to leave your home or make regular loan payments; insured by FHA Home Keeper Mortgage™ • reverse mortgage product developed and insured by Fannie Mae Index • added to a margin to calculate the interest rate. On the HECM, the index is the one‐year rate for U.S. Treasury Securities (for the current rate) or the ten‐year rate for U.S. Treasury Securities (for the expected rate) or the LIBOR. On the Home Keeper, the index is the one‐month Certificate of Deposit (CD). HUD • U.S. Department of Housing and Urban Development Initial Interest Rate • the interest rate that is first charged on the loan beginning at closing. LDP • the Limited Denial of Participation list (see appropriate heading in Processing section) Leftover Equity • the net proceeds from selling a home, minus the total amount of debt owed against it.Fr


Lending Limit • a cap of the portion of the home value that is used when calculating the Principal Limit. Varies by county for the FHA products; consistent nationwide for the Fannie Mae product; See also 203‐ b Limit LIBOR • see London Interbank Offered Rate Line of Credit • See Credit Line Loan Advances • payments made from a loan to a borrower Loan Balance • the amount owed on a loan London Interbank Offered Rate • the interest rate at which banks offer to lend unsecured funds to other banks in the London wholesale money market (or interbank market); used for determining the interest rate for the Fixed HECM, the HECM Libor ARM, the EPA (Equity Plus Advantage) and Simple 60 product. Lump Sum • a single loan advance at closing Margin • the amount added to the index (see index) to calculate the rate. Maturity • when a loan becomes due and payable Maximum Claim Amount • same as Adjusted Property Value MIP • see Mortgage Insurance Premium Mortgage • a legal document making a home available to a lender to satisfy a debt Mortgage Insurance • insures the investor against risk. If the borrower owes more money than the lender will receive once the borrower or estate sells the home, the mortgage insurance protects the lender against loss Mortgage Insurance Premium • an amount charged to the borrower to pay for Mortgage Insurance for HECMs only Net Principal Limit • the estimated amount of money available to the borrower; equal to the principal limit LESS (1) any payments to the borrower, (2) any financed closing costs, (3) the servicing fee allocations, (4) any set‐asides, plus (5) any partial repayments Non‐Recourse Mortgage • a home loan in which a lender may look only to the value of the home for repayment; no other assets may be attached if the loan balance grows beyond the mortgaged home value Origination • the overall administrative process of setting up a mortgage, including the preparation of documents Origination Fee • a fee charged to the borrower for the origination process. Each loan product may differ. � HECM = the greater of $2000 or 2% of the Maximum Claim Amount � Home Keeper = the greater of $2000 or 2% of the Adjusted Property Value � EPA (Equity Plus Advantage) = 2% of the Principal Limit Payment Plan • manner in which loan proceeds are paid to the borrower Pledged Value or Limit • see Adjusted Property Value


Principal Limit • An estimated amount available to the borrower at the closing including set‐asides, fees, and payoffs is called the principal limit. The Principal Limit is calculated by the software and is shown in the Comparison print‐out Principal Limit Protection • essentially puts a “hold” on the amount of funds available to a borrower at application. Expires 120 days after the processor orders the FHA Case Number; applies to the HECM only; not a rate lock! Proprietary Reverse Mortgages • a reverse mortgage product owned by a private company PUD (Planned Urban Development) • a real estate project in which each unit owner has title to a residential lot and building and a nonexclusive easement on the common areas of the project. The owner may have an exclusive easement over some parts of the common areas (for example, a parking space) RESPA • the Real Estate Settlement Protection Act, which is the body of law governing ethical loan origination; all lenders are required to remain compliant with RESPA laws Reverse Mortgage • a non‐recourse loan against home equity providing cash advances to a borrower and requiring no repayment until a future time Right of Rescission • a borrower’s right to cancel a home loan within three business days of closing, without penalty; borrower must rescind in writing RM • see Reverse Mortgage Servicing • performing administrative functions on a loan after closing, including monthly statements and disbursement of funds Set‐Aside • funds for specified uses that are netted out when determining the borrower’s principal limit Shared Appreciation • an itemized loan cost based on a percent of any increase in the value of the home between origination and maturity; for example, a 10% shared appreciation fee on a home that increases in value by $100,000 would be $10,000 Shared Equity • an itemized loan cost based on a percent of a home’s value at loan maturity; for example, a 10% shared equity fee on a home worth $200,000 at maturity would be $20,000 Single‐Purpose Reverse Mortgage • a reverse mortgage that can be used for only one purpose, generally offered by state or local government agencies Supplemental Security Income (SSI) • a federal program providing monthly cash benefits to low income persons aged 65+, blind, or disabled Tenure Advances • fixed monthly loan advances for as long as a borrower lives in a home Term Advances • fixed monthly loan advances for a specific period of time Total Annual Loan Cost (TALC) Rate • the projected annual average cost of a reverse mortgage including all itemized costs T‐Rate • A rate for U.S. Treasury Securities; used to determine the initial, expected, and current interest rates for the HECM program



Economy & Finance

REVERSE MORTGAGE - HECM LOAN - Guidelines And Procedures