CHAPTER 3. PROPERTY ANALYSIS
3-1 PURPOSE. This chapter explains the procedures for the lender to
follow in submitting the property for valuation analysis. The
procedures for the local HUD office to follow in appraising and
analyzing the property are also explained. Refer to HUD Handbook
4150.1 for standard valuation analysis procedures. This chapter
supersedes that handbook only as noted below.
3-2 ORDERING THE APPRAISAL AND OBTAINING A CASE NUMBER. To order an
appraisal and receive a case number, a lender should do the following:
A.Complete Form HUD 92800, Application for Property Appraisal and
Conditional Commitment.
1)The form should be completed according to the instructions
included on the form.
2)The lender must type "Home Equity Conversion Mortgage" in
Block 5 under the name and address of the lender.
B.Follow local HUD office procedures to obtain a case number and an
appraisal assignment.
1)The lender should identify the case as a Section 255
mortgage and provide information on the property address and
other necessary information.
2) CHUMS will assign the next available case number.
3)Applications will be assigned regular case numbers, and will
be distinguished by CHUMS according to separate Section of
the Act ADP codes:
a.911 - fixed rate HECM with assignment option
b.912 - adjustable rate HECM with assignment option
c.913 - fixed rate HECM with shared premium option
d.914 - adjustable rate HECM with shared premium option
e.915 - fixed rate HECM with shared appreciation option
f. 916 - adjustable rate HECM with shared appreciation
option
C.Send copies 1, 3 and 4 of the Form HUD 92800 (the lender should
retain copy 2), along with a Uniform Residential Appraisal Report
(URAR), to the assigned appraiser.
D.Send a Uniform Case Binder to the local HUD office with the case
number written in the designated spaces. Refer to HUD Handbook
4165.1 for case binder specifications.
E.Lenders may also utilize the CHUMS Lender Access System (CLAS) in
order to request a case number and appraisal assignment for a
property. CLAS Receiving and Assignment requests use interactive
CHUMS screens and require HUD intervention. See Paragraph 1-15.
3-3REQUIREMENTS FOR APPRAISALS. The financial soundness of the HECM
program requires an accurate determination of property value and
property condition. The eventual recovery of the mortgage proceeds is
highly dependent on receiving a predictable sum from the sale or
refinance of the subject property.
A.The appraisal must be completed on the URAR in accordance with
current HUD Valuation policy.
1)When estimating value, the appraiser should carefully
analyze the condition of the property and the surrounding
neighborhood.
2)Repairs required to allow the property to meet Minimum
Property Standards for existing properties (see HUD Handbook
4905.1) and the presence of defective paint surfaces should
be explicitly noted.
3)A property should not be rejected by the appraiser. If
required repairs are estimated to cost more than 30% of the
maximum claim amount (see Paragraph 3-8), the Valuation
Branch of the local HUD office should review the property to
determine if it is acceptable for the program.
4)The appraiser should include estimates of taxes and hazard
insurance.
B.At the discretion of the local HUD office, appraisals performed
for the Section 203(b) and 234(c) mortgage insurance programs may
be used for HECMs.
C.A Certificate of Reasonable Value from the Department of Veterans
Affairs (VA-CRV) can not be substituted for an FHA appraisal.
3-4 ELIGIBLE PROPERTIES.
A.Eligible properties are existing, one unit properties.
1)This guideline, which excludes two-, three-, and four-unit
properties is imposed by the statute authorizing the
program.
2)The classification of the property as a one-, two-, three-,
or four-unit property occurs when the property is appraised.
In defining the number of units on a property, the appraiser
focuses on the viability of each unit as an independent,
self-supporting unit. Characteristics such as separate
kitchen and bathroom facilities, private entrances and
separate legal addresses are all considered in this
determination. Whether or not two residences share the same
property or simply share a common wall is also a
consideration. Therefore, it is important that lenders not
rely on the assumptions of the homeowner when advising the
homeowner of his or her eligibility for the program. The
final decision regarding the classification of the property
is made by the appraiser.
B.Provided that a manufactured home complies with Paragraph 3-4 of
Handbook 4145.1, it is eligible under the following
circumstances:
1)The home must have a floor area of no less than 400 square
feet.
2)The home must be constructed in conformance with Federal
Manufactured Home Construction and Safety Standards, as
evidenced by an affixed certification label, according to 24
CFR 3280.8. Only manufactured homes produced after June 15,
1976, will bear that seal. Consequently, manufactured homes
produced prior to that date are ineligible for HECMs.
3) The home must be classified and taxed as real estate.
4)The manufactured unit must not have been installed or
occupied previously at any other site or location.
C.Eligible condominiums must be part of a HUD-approved condominium
project (see HUD Handbook 4265.1). Each local HUD office has a
list of the condominium projects approved within its jurisdiction
and can provide instructions on obtaining HUD approval of a
condominium project.
D.Units in cooperative housing developments are not eligible.
E.The mortgage must be on a 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.
F.If a property is located in a Planned Unit Development (PUD), the
lender must ensure that the development has been approved by HUD
(see HUD Handbook 4150.1). The local HUD office maintains a list
of approved PUDs within its jurisdiction.
G.A property eligible for mortgage insurance only through HUD's
Special Risk Insurance Fund [e.g. pursuant to Section 223(e)] is
not eligible for mortgage insurance under this program.
H.Requirements for maintaining flood insurance coverage.
1)Flood insurance requirements must be met if the mortgage is
to cover property that:
a.Is located in an area designated by the Federal
Emergency Management Agency (FEMA) as a flood plain
area having special flood hazards, or
b.Is otherwise determined by the Commissioner to be
subject to a flood hazard.
2) No mortgage may be insured on such a property unless:
a.The community in which the area is situated is
participating in the National Flood Insurance Program
(NFIP), and
b.Such insurance is obtained by the mortgagor.
3)The requirement for flood insurance shall be effective July
1, 1975, or one year after the date of notification by FEMA
to the chief executive officer of a flood prone community
that such community has been identified as having special
flood hazards, whichever is later.
4)The flood insurance shall be maintained during such time as
the mortgage is insured, in an amount at least equal to
either the outstanding balance of the mortgage, or the
maximum amount of NFIP insurance available with respect to
the property, whichever is less.
3-5REQUIREMENTS FOR EXISTING HOUSING. The appraisal should designate
required repairs which are necessary for the property to meet the
minimum acceptable level of quality for existing properties (see
Handbook 4905.1).
A.An estimate of the cost of the repairs will be provided by the
appraiser.
1)If the required repairs are substantial, the appraiser can
determine that he or she is not qualified to make an
accurate determination of the repairs that are required or
to estimate the cost of those repairs. Under these
circumstances, the appraiser can request that the lender
have an inspection performed by a member of the local HUD
office's fee inspector panel. That inspector will then
determine what repairs are required and give an estimate of
those repairs.
2)If the required repairs are substantial, the borrower may
obtain the services of a general contractor to complete the
repairs. If the contractor's estimate of repairs differs
substantially from the estimate prepared by the HUD fee
inspector, then the Valuation staff of the local HUD office
must reconcile the two estimates.
3)The lender may have a compliance inspector assigned through
CLAS after a case number has been issued. Requests will
only be accepted if an inspector has not already been
assigned to the case. These requests are processed without
HUD intervention.
B.Required repairs that are estimated to cost less than 15% of the
maximum claim amount can be completed after closing.
1)When required repairs are to be completed after closing, the
lender will certify, through the Repair Rider (Appendix 8)
to the Loan Agreement (Appendix 7) to be completed at
closing, that repairs will be completed in a satisfactory
manner, designed to meet the Requirements for Existing
Housing (Handbook 4905.1).
2)The lender's responsibilities under the Loan Agreement and
Repair Rider are as follows:
a.The lender must ensure that the property is inspected
one or more times by a HUD-approved inspector. The
property must be inspected before funds to pay for
completed repairs can be disbursed. A Form HUD 92051,
Compliance Inspection Report, must be completed and
submitted to the HUD Valuation Branch for signature
prior to releasing funds.
b.The lender must ensure that all mechanics' and
materialmen's liens are released of record.
c.The lender may charge a fee not to exceed the greater
of one and one-half (1 1/2) percent of the funds used
for repairs or $50 for the administration of this
agreement. This fee is paid to the lender and is
independent of the fees paid by the borrower for
compliance inspections.
3)Money to pay for required repairs will not be held back in
an escrow account. At closing, the borrower must establish
a repair set aside at least equal to 150% of the cost of
repairs, plus the repair administration fee. The borrower
may add additional funds to the repair set aside, but the
funds cannot be drawn until the repairs are completed.
a.When individual repairs are completed, the necessary
funds will be disbursed from the line of credit; and
the lender must ensure that all liens are removed.
b.If the repairs are completed without using all of the
funds set aside, the lender must transfer the remaining
funds to a line of credit and inform the borrower of
the amount transferred.
c.If the cost of the repairs exceeds the amount
initially set aside for repairs, the borrower must 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 (see Chapter 5 and HUD Handbook
4330.1).
4)If the required repairs are not completed within the time
period specified in the Repair Rider to the Loan Agreement,
the lender must discontinue payments on the loan, freezing
the loan at a line of credit status, available only to fund
repairs, and mandatory items such as property charges and
MIP.
C.Required repairs that are estimated to cost more than 15% of the
maximum claim amount must be completed before closing.
1)When required repairs are to be completed before closing,
the property must be inspected before closing and a Form HUD
92051, Compliance Inspection Report, certifying that
required repairs have been completed, must be submitted to
the local HUD office.
2)When required repairs are to be completed before closing,
the borrower can have the repairs completed with the
intention of paying the contractors with the mortgage
proceeds. However, any amounts owed must be paid at closing
and all liens removed at closing. Therefore, any amounts
owed must not exceed the borrower's net principal limit at
closing.
D.HUD only requires that the property meet the Requirements for
Existing Housing in Handbook 4905.1. Many repairs desired by the
borrower, therefore, will not be required by HUD nor will they be
included in the Repair Rider to the Loan Agreement.
Consequently, their completion will not be a condition of the
approval of the mortgage. Furthermore, the lender cannot require
that the borrower make repairs not required to meet minimum
property standards.
E.In certain situations, the borrower will be required to treat any
defective paint surfaces after closing for properties built
before 1978, and comply with the Lead-base Paint Poisoning
Prevention Act (LPPPA) requirements.
1)When children under the age of seven will be residing in the
property, the borrower must treat the defective paint
surfaces in accordance with LPPPA requirements.
2)If children under the age of seven will not be residing in
the property, the borrower can certify to that fact in
writing, and the treatment of defective paint surfaces will
not be required. This certification can accompany the
appraisal or the approval of the property can be conditioned
on the receipt of this certification.
3-6 PROTECTIVE COVENANTS IN HOUSING COMMUNITIES FOR THE ELDERLY. The
Department's regulations concerning the acceptability of protective
covenants in HUD approved condominium projects and planned unit
developments (PUDs), required by the Fair Housing Amendments Act of
1988, are applicable for the HECM program. The regulations
essentially ban protective covenants based on familial status, but
contain certain exemptions. These exemptions allow "retirement"
communities to be HUD approved under two sets of circumstances. The
housing in the community:
A.Must be intended for, and solely occupied by, persons 62 years of
age or older; or
B.Must be intended and operated for occupancy by at least one
person 55 years of age or older per unit, and provide significant
facilities and services specifically designed to meet the
physical or social needs of older persons, or if it is not
practicable to provide significant facilities and services
designed to meet the physical or social needs of older persons,
the housing facility should be necessary to provide important
housing opportunities for older persons.
Lenders should refer to the regulations at 24 CFR Parts 100,103, 104
et. seq. before submitting a project for approval.
3-7 RECEIPT AND LOGGING OF APPRAISALS. The appraisal should be logged on
CHUMS in accordance with standard single family procedures for HUD
processed cases. The Valuation staff should follow standard appraisal
review procedures to ensure the quality of the work performed by the
appraiser.
3-8 MAXIMUM CLAIM AMOUNT. The HUD Valuation Branch will determine the
maximum claim amount, depending on the appraised value of the
property.
A.The maximum claim amount is the maximum dollar amount that HUD
will pay on a claim for insurance benefits.
B.The maximum claim amount is the lesser of the appraised value or
the maximum principal amount for a one-family residence under
Section 203(b)(2) of the National Housing Act that HUD will
insure in the area.
C.Neither the estimate of closing costs nor the initial MIP is used
in the calculation of the maximum claim amount.
3-9CONDITIONAL COMMITMENT. The HUD Valuation Branch will issue a
Conditional Commitment on Form HUD 92800.5B using CHUMS.
A.The commitment will have a term of six months.
B.The commitment will provide an estimate of taxes and hazard
insurance.
C.The HUD 92800.5B will be completed in the same manner as for
cases insured under the Section 203(b) program.
D.The HUD 92800.5B will indicate the maximum claim amount in the
"Specific Commitment Conditions" section.
E.The HUD 92800.5B should always indicate that the property is an
existing dwelling.
F.If repairs are required after closing, Condition 3 of the HUD
92800.5B will be completed, indicating information entered on the
Appraisal Disposition Screen 2 on CHUMS. The Form HUD 92800.5B
will also indicate that Form HUD 92300 will be completed,
designating the necessary amount to complete the required
repairs. Refer to Chapter 5 of HUD Handbook 4145.1 for repair
set-aside procedures.
3-10 CASE CANCELLATION. The lender may cancel a case number through
CLAS. Requests are processed without HUD intervention.
| HECM Guidelines |
| Home Equity Conversion Mortgages |
The HECM FHA insured reverse mortgage can be used
by senior homeowners age 62 and older to convert the
equity in their home into monthly streams of income
and/or a line of credit to be repaid when they no
longer occupy the home. The loan, commonly known
as HECM, is funded by a lending institution such as a
mortgage lender, bank, credit union or savings and
loan association. To assist the homeowner in making
an informed decision of whether this program meets
their needs, they are required to receive consumer
education and counseling by a HUD-approved HECM
counselor.
by senior homeowners age 62 and older to convert the
equity in their home into monthly streams of income
and/or a line of credit to be repaid when they no
longer occupy the home. The loan, commonly known
as HECM, is funded by a lending institution such as a
mortgage lender, bank, credit union or savings and
loan association. To assist the homeowner in making
an informed decision of whether this program meets
their needs, they are required to receive consumer
education and counseling by a HUD-approved HECM
counselor.
