HUD Handbook 4000.1 FHA Single Family Housing …

FHA Single Family Housing Policy Handbook

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HUD Handbook 4000.1

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FHA Single Family Housing Policy Handbook

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USER QUICK GUIDE

5 Below are some helpful tips for using HUD Handbook 4000.1, FHA Single Family Housing 6 Policy Handbook (Handbook 4000.1):

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1. Handbook 4000.1 is organized in the sequence of a life cycle of a mortgage.

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below the heading title is proposed new content for HECM. Yellow highlighted text in

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section II.D indicates proposed updates to published Handbook 4000.1.

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the Glossary.

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Handbook 4000.1 ? HECM

FHA Single Family Housing Policy Handbook Table of Contents

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FHA Single Family Housing Policy Handbook

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TABLE OF CONTENTS

3 I. DOING BUSINESS WITH FHA..................................................................................... 1

4 II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT........................... 1

5 A. TITLE II INSURED HOUSING PROGRAMS FORWARD MORTGAGES ................. 1

6 B. TITLE II INSURED HOUSING PROGRAMS HOME EQUITY CONVERSION

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MORTGAGES ........................................................................................................................ 1

8 1. Origination/Counseling Requirements...................................................................................... 1

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a. Required Referral for HECM Counseling .......................................................................... 1

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b. Restrictions on Processing of Applications Before Completion of HECM Counseling .... 2

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c. Individuals Required to Receive HECM Counseling ......................................................... 3

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d. Counseling Prohibited Practices ......................................................................................... 3

13 2. Origination/Processing.............................................................................................................. 4

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a. Applications and Disclosures.............................................................................................. 4

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b. General HECM Insurance Eligibility................................................................................ 27

16 3. Allowable Mortgage Parameters............................................................................................. 50

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a. Maximum Mortgage Amounts.......................................................................................... 50

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b. Maximum Claim Amount ................................................................................................. 50

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c. Interest Rate Options......................................................................................................... 51

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d. Principal Limit .................................................................................................................. 51

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e. Payment Plan .................................................................................................................... 54

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f. HECM Calculator Software .............................................................................................. 55

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g. Disbursement Limits ......................................................................................................... 55

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h. Maximum Mortgage Term................................................................................................ 57

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i. Mortgage Insurance Premiums ......................................................................................... 57

26 4. Underwriting the Property ...................................................................................................... 58

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a. Property Acceptability Criteria ......................................................................................... 58

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b. Required Documentation for Underwriting the Property ................................................. 75

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c. Conditional Commitment Direct Endorsement Statement of Appraised Value ............... 75

30 5. Performing the Financial Assessment of the Borrower .......................................................... 75

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a. Definition .......................................................................................................................... 75

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b. Credit History Review Requirements ............................................................................... 75

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c. Property Charge Payment History Review Requirements................................................ 85

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d. Monthly Expense Analysis ............................................................................................... 88

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e. Effective Income Analysis.............................................................................................. 100

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f. Residual Income Analysis............................................................................................... 126

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g. Asset Requirements ........................................................................................................ 131

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h. Required Documentation ................................................................................................ 139

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i. Final HECM Decision..................................................................................................... 139

40 6. Closing .................................................................................................................................. 150

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a. Mortgagee Closing Requirements................................................................................... 150

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b. Mortgage and Note ......................................................................................................... 166

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c. Adaptation of Loan Documents ...................................................................................... 167

Handbook 4000.1 ? HECM

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FHA Single Family Housing Policy Handbook Table of Contents

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d. Disbursement of HECM Proceeds .................................................................................. 167

2 7. Post-Closing and Endorsement ............................................................................................. 168

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a. Pre-Endorsement Review................................................................................................ 168

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b. Mortgagee Pre-Endorsement Review Requirements ...................................................... 168

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c. Inspection and Repair Requirements for HECMs Pending Endorsement in Presidentially-

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Declared Major Disaster Areas ....................................................................................... 174

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d. Procedures for Endorsement ........................................................................................... 175

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e. Endorsement and Post-Endorsement .............................................................................. 183

9 8. Programs and Products ......................................................................................................... 185

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a. HECM For Purchase ....................................................................................................... 185

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b. HECM Refinance............................................................................................................ 207

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c. Condominiums................................................................................................................ 211

13 C. CONDOMINIUM PROJECT APPROVAL .................................................................... 235

14 D. APPRAISER AND PROPERTY REQUIREMENTS FOR TITLE II FORWARD AND

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REVERSE MORTGAGES ................................................................................................ 235

16 1. Commencement of the Appraisal.......................................................................................... 235

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a. Information Required before Commencement of Appraisal .......................................... 235

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b. Additional Information Required Before Commencement of an Appraisal on New

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Construction .................................................................................................................... 235

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c. Additional Information Required Before Commencement of an Appraisal on a Property

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with an Exception from the Lead-Based Paint Poisoning Prevention Act (LPPPA)

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(HECM Only) ................................................................................................................. 235

23 2. General Appraiser Requirements .......................................................................................... 235

24 3. Acceptable Appraisal Reporting Forms and Protocols......................................................... 236

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a. Application of Minimum Property Requirements and Minimum Property Standards by

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Construction Status ......................................................................................................... 236

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b. Minimum Property Requirements and Minimum Property Standards ........................... 238

28 APPENDIX 9.0 - ASSUMED LOAN PERIODS FOR COMPUTATIONS OF TOTAL

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ANNUAL LOAN COST RATES................................................................................. 239

30 SERVICING AND LOSS MITIGATION ? TITLE II INSURED HOUSING PROGRAMS

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HOME EQUITY CONVERSION MORTGAGES (HECM) ................................... 241

32 III. SERVICING AND LOSS MITIGATION .................................................................. 242

33 A. TITLE II INSURED HOUSING PROGRAMS FORWARD MORTGAGES ............. 242

34 B. TITLE II INSURED HOUSING PROGRAMS HOME EQUITY CONVERSION

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MORTGAGES .................................................................................................................... 242

36 1. Servicing of FHA-Insured HECMs ...................................................................................... 242

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a. Servicing in Compliance with Law................................................................................. 242

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b. Responsibility for Servicing Actions .............................................................................. 243

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c. Providing Information to HUD ....................................................................................... 245

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d. Communication with Borrowers and Authorized Third Parties ..................................... 245

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e. Borrower Disbursements ................................................................................................ 246

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f. Payment Administration ................................................................................................. 249

Handbook 4000.1 ? HECM

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FHA Single Family Housing Policy Handbook Table of Contents

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g. Servicing Fees and Charges ............................................................................................ 250

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h. Interest Rate Changes for Adjustable Rate HECMs ....................................................... 251

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i. Set-Asides ....................................................................................................................... 252

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j. Allowable Fees and Charges........................................................................................... 256

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k. Prepayment ..................................................................................................................... 258

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l. Completion of Required Repairs .................................................................................... 260

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m. Insurance Coverage Administration ............................................................................... 261

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n. Mortgage Insurance Premium Remittance...................................................................... 265

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o. Post-Endorsement HECM Amendments ........................................................................ 266

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p. Occupancy Certification ................................................................................................. 271

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q. Property Maintenance ..................................................................................................... 272

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r. Optional Assignment ...................................................................................................... 273

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s. Demand Assignment ....................................................................................................... 281

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t. Repurchase of Previously Assigned HECM ................................................................... 282

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u. Mortgage Insurance Termination.................................................................................... 284

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v. Record Retention ? Servicing File .................................................................................. 286

17 2. Default Servicing .................................................................................................................. 287

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a. Use of Counseling Agencies ........................................................................................... 287

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b. Due and Payable Servicing ............................................................................................. 287

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c. Defaults for Unpaid Property Charges............................................................................ 294

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d. Initiation of Foreclosure and Reasonable Diligence Time Frames................................. 304

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e. Sale of Property Acquired through Foreclosure or DIL ................................................. 310

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f. Claims ............................................................................................................................. 311

24 3. Programs and Products ......................................................................................................... 316

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a. Presidentially-Declared Major Disaster Areas................................................................ 316

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b. Mortgagee Optional Election Assignment...................................................................... 317

27 APPENDIX 1.0 ? MORTGAGE INSURANCE PREMIUMS.............................................. 328

28 APPENDIX 2.0 ? ANALYZING IRS FORMS ...................................................................... 328

29 APPENDIX 3.0 ? POST-ENDORSEMENT FEES AND CHARGES BY HOC (APPLIES

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TO SERVICING ONLY) ............................................................................................. 329

31 APPENDIX 4.0 ? HUD SCHEDULE OF STANDARD ATTORNEY FEES (APPLIES TO

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SERVICING ONLY) .................................................................................................... 336

33 APPENDIX 5.0 - FIRST LEGAL ACTIONS TO INITIATE FORECLOSURE AND

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REASONABLE DILIGENCE TIME FRAMES (APPLIES TO SERVICING

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ONLY)............................................................................................................................ 336

36 APPENDIX 6.0 - PROPERTY PRESERVATION ALLOWANCES AND SCHEDULES

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(APPLIES TO SERVICING ONLY) .......................................................................... 339

38 A. MAXIMUM PROPERTY PRESERVATION ALLOWANCES ................................... 339

39 B. WINTERIZATION SCHEDULE...................................................................................... 342

40 C. GRASS CUT SCHEDULE................................................................................................. 342 41 GLOSSARY............................................................................................................................... 345 42 ACRONYMS ............................................................................................................................. 396

43 Handbook 4000.1 ? HECM

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II. Origination through Post-Closing/Endorsement B. Title II Insured Housing Programs Home Equity Conversion Mortgages 1. Origination/Counseling Requirements

1 I. DOING BUSINESS WITH FHA

2 II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT

3 A. TITLE II INSURED HOUSING PROGRAMS FORWARD MORTGAGES

4 B. TITLE II INSURED HOUSING PROGRAMS HOME EQUITY CONVERSION

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MORTGAGES

6 The Title II Insured Housing Programs Home Equity Conversion Mortgages (HECM) 7 Origination through Post-Closing/Endorsement section in this FHA Single Family Housing 8 Policy Handbook (Handbook 4000.1) provides the origination, property underwriting, financial 9 assessment, closing, post-closing, and endorsement standards and procedures applicable to 10 HECMs insured under Section 255 of Title II of the National Housing Act.

11 The Mortgagee must fully comply with all of the following standards and procedures in 12 originating, underwriting the Property, conducting the financial assessment, and closing for 13 obtaining Federal Housing Administration (FHA) mortgage insurance on all HECM transactions.

14 If there are any exceptions or program-specific standards or procedures that differ from those set 15 forth below, the exceptions or alternative program or product specific standards and procedures 16 are explicitly stated in Section 8. Terms and acronyms used in this Handbook 4000.1 have their 17 meanings defined in the Glossary and Acronyms sections and in the specific section of the 18 Handbook 4000.1 in which the definitions are located.

19 1. Origination/Counseling Requirements

20 A Home Equity Conversion Mortgage (HECM) refers to a non-recourse, reverse mortgage that 21 allows a HECM Borrower (Borrower) access to equity secured by the Principal Residence with 22 no corresponding monthly mortgage payment.

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a. Required Referral for HECM Counseling

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i. Definition

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Participating Agency refers to all housing counseling and intermediary organizations

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participating in HUD's Housing Counseling program, including HUD-approved agencies,

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and affiliates and branches of HUD-approved intermediaries, HUD-approved multi-state

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organizations, and state housing finance agencies.

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ii. Standard

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The Mortgagee must provide each prospective Borrower with a list of the names,

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addresses, and telephone numbers of the Participating Agencies eligible to provide

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HECM counseling that includes:

Handbook 4000.1 ? HECM Origination

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II. Origination through Post-Closing/Endorsement B. Title II Insured Housing Programs Home Equity Conversion Mortgages 1. Origination/Counseling Requirements

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? all HUD-approved intermediaries listed on the HUD Intermediaries Providing

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HECM Origination Counseling Nationwide;

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? Participating Agencies that provide telephone counseling; and

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? at least five Participating Agencies located in the prospective Borrower's state or

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locality, including at least one local agency within a reasonable driving distance

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of the prospective Borrower's residence for face-to-face counseling.

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In cases where HECM counseling is not available in the local area or state, Mortgagees

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must determine which Participating Agencies are most conveniently located to the

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Borrower and provide a listing of at least five Participating Agencies.

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iii. Required Documentation

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The Mortgagee must enter the date the prospective Borrower received the list of

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Participating Agencies in FHA Connection (FHAC) within one business day of

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requesting the case number.

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b. Restrictions on Processing of Applications Before Completion of HECM Counseling

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i. Definition

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A Third-Party Originator (TPO) is an Entity that originates FHA Mortgages for an FHA-

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approved Mortgagee acting as its sponsor. A TPO may be an FHA-approved Mortgagee

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or a non-FHA-approved Entity.

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ii. Standard

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The Mortgagee and/or sponsored TPO (see section I.A.5.a.v Sponsor/Sponsored Third-

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Party Originator Relationship in Handbook 4000.1) may perform only the functions listed

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below before all required HECM counseling has been completed by all individuals

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required to receive counseling:

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? accept the loan application and provide required disclosures;

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? lock in the Expected Average Mortgage Interest Rate (Expected Rate);

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? explain the HECM program to the Borrower;

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? discuss whether the Borrower is eligible for HECM financing;

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? provide information regarding the fees and charges associated with the HECM

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product;

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? describe the potential financial implications of a HECM for the Borrower;

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? provide the Borrower with sample copies of the HECM Note, Mortgage, and loan

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agreement;

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? order preliminary title report;

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? order Automated Valuation Model (AVM); or

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? order credit report to perform a preliminary credit review of the Borrower's financial

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obligations.

Handbook 4000.1 ? HECM Origination

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Post Date: 09/29/2021

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II. Origination through Post-Closing/Endorsement B. Title II Insured Housing Programs Home Equity Conversion Mortgages 1. Origination/Counseling Requirements

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The Mortgagee and sponsored TPO may not collect any fee or the Borrower's banking

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account and credit card information before closing, or in connection with any function

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permitted above if the function is performed before receipt of a signed and dated form

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HUD-92902, Certificate of HECM Counseling, for each individual required to receive

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counseling.

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c. Individuals Required to Receive HECM Counseling

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i. Definitions

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A Non-Borrowing Spouse (NBS) refers to the spouse of a HECM Borrower who is also

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not a Borrower.

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Non-Borrowing Owner refers to someone who is not the spouse of a Borrower and is on

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the title to the Property that will serve as collateral for the HECM.

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ii. Standard

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The Mortgagee must ensure all Borrowers, NBSs, and Non-Borrowing Owners have

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received HECM counseling from a counselor on the HECM Roster.

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For any Borrower, NBS, or Non-Borrowing Owner lacking legal competency, HECM

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counseling must be completed by:

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? the person holding a Power of Attorney (POA); or

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? a court-appointed conservator or guardian.

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For additional information on HECM Counseling see HUD Handbook 7610.1.

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iii. Required Documentation

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The Mortgagee must obtain a copy of the Certificate of HECM Counseling signed and

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dated by each individual required to receive counseling and the HECM counselor. The

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Mortgagee and sponsored TPOs may only request changes to the Certificate of HECM

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Counseling up until the HECM is endorsed.

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The Mortgagee must enter the HECM counseling certificate identification number in

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FHAC. When there are multiple certificates, the Mortgagee must use the HECM

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counseling certificate identification number of the last person counseled.

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d. Counseling Prohibited Practices

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i. Definition

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Interested Parties refer to sellers, real estate agents, builders, developers, Mortgagees,

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Third-Party Originators (TPO), or other parties with an interest in the transaction.

Handbook 4000.1 ? HECM Origination

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Post Date: 09/29/2021

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II. Origination through Post-Closing/Endorsement B. Title II Insured Housing Programs Home Equity Conversion Mortgages 2. Origination/Processing

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ii. Prevention of Undue Influence in HECM Counseling

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Interested Parties to the transaction must not:

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? be present during HECM counseling; or

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? provide Borrowers with advance copies of the HECM counselor's review

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questions with answers.

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iii. Prohibited Steering and Payment of HECM Counseling Fees

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Interested Parties to the transaction must not steer, direct, recommend, or otherwise

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encourage any individual to seek the services of any one particular Participating Agency

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or HECM counselor.

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The Mortgagee must not refer Borrowers to any one particular Participating Agency or

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HECM counselor, discuss a Borrower's personal information, including the timing or

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scheduling of the counseling; or request information regarding the topics covered in a

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counseling session.

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The Mortgagee may not pay a Participating Agency or HECM Counselor, directly or

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indirectly, for HECM counseling services, through either a lump-sum payment or on a

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case-by-case basis.

17 2. Origination/Processing

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a. Applications and Disclosures

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The Mortgagee must obtain a completed Fannie Mae Form 1009, Residential Loan

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Application for Reverse Mortgages (RLARM), from the Borrower and must capture

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additional required information using Parts IV, V, and VI of Fannie Mae Form 1003,

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Uniform Residential Loan Application (URLA), or an alternative form that captures the same

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information. In addition, the Mortgagee must provide all required federal and state

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disclosures to begin the origination process. Regardless of the form used, Mortgagees must

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ensure that the Borrower certifies to the accuracy and completeness of the financial

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information. The Mortgagee is responsible for using the most recent version of all forms as

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of the date of completion of the form.

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i. Contents of the HECM Application Package

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The Mortgagee must maintain all information and documentation that is relevant to its

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approval decision in the HECM file. All information and documentation that is required

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in this Handbook 4000.1, and any incidental information or documentation related to

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those requirements, is relevant to the Mortgagee's approval decision.

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If after obtaining all documentation required below, the Mortgagee has reason to believe

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it needs additional support for the approval decision, the Mortgagee must obtain

Handbook 4000.1 ? HECM Origination

4

Post Date: 09/29/2021

This is a DRAFT document for posting on the Drafting Table to collect industry feedback. The document will

undergo Departmental Clearance again prior to final publication. See cover page of document for more info.

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