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g. Asset Requirements (08/19/2024)
i. General Asset Requirements
When calculating sources of funds available to meet closing requirements, the Mortgagee may only consider assets derived from acceptable sources in accordance with the requirements outlined below.
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5. Performing the Financial Assessment of the Borrower
The Mortgagee must document all funds that are used to calculate borrower funds that are required to close a HECM, including those to pay:
• Mandatory Obligations;
• costs outside of closing;
• other required cash from the Borrower to close the transaction; or
• additional funds the Borrower brings to closing to reduce Mandatory Obligations.
(A) Determining the Amount Needed for Closing
The amount of cash needed by the Borrower to close an FHA-insured HECM is the difference between Mandatory Obligations and the Principal Limit.
(B) Mortgagee Responsibility for Estimating Closing Cost Requirements
The Mortgagee must determine the total amount of cash that the Borrower must provide at HECM closing.
(1) Loan Origination Fees and Other Closing Costs
The Mortgagee may charge a reasonable loan origination fee.
The Mortgagee may charge and collect from Borrowers those customary and reasonable closing costs and prepaid items necessary to close the HECM. Charges may not exceed the actual costs.
(2) Initial Mortgage Insurance Premium Amounts
Any IMIP amounts paid in cash are added to the total cash closing requirements.
(3) Real Estate Agent Fees
If a Borrower is represented by a real estate agent and must pay any fee directly to the agent, that expense must be included in the total of the Borrower’s closing requirements.
(4) Types of Prepaid Items
Prepaid items may include flood and hazard insurance premiums, MIPs, and real estate taxes. They must comply with the requirements of the CFPB.
ii. Acceptable Sources of Funds
The Mortgagee must verify liquid assets from acceptable sources used to calculate availability of funds required to close. Mortgagees may not count the same asset twice (i.e., as a source of imputed income to support Residual Income and as a source of cash to close).
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5. Performing the Financial Assessment of the Borrower
(A) Checking and Savings Accounts
(1) Definition
Checking and Savings Accounts refer to funds from Borrower-held accounts in a financial institution that allows for withdrawals and deposits.
(2) Standard
The Mortgagee must verify and document the existence of and amounts in the Borrower’s checking and savings accounts. The Mortgagee must verify and document the source of deposits for recently opened accounts and recent individual deposits of more than 1 percent of the MCA.
(3) Required Documentation
If the Borrower does not hold the deposit account solely, all non-Borrower parties on the account must provide a written statement that the Borrower has full access and use of the funds.
(a) Traditional Documentation
The Mortgagee must obtain:
• a written Verification of Deposit (VOD) and the Borrower’s most recent statement for each account; or
• direct verification by a TPV vendor of the Borrower’s account covering activity for a minimum of the most recent available month for a minimum of one month, subject to the following requirements: the Borrower has authorized the Mortgagee to use a TPV vendor to
verify assets; and the date of the data contained in the completed verification is
current within 30 days of the date of the verification.
(b) Alternative Documentation
If a VOD is not obtained, a statement showing the previous month’s ending balance for the most recent month is required. If the previous month’s balance is not shown, the Mortgagee must obtain statement(s) for the most recent two months.
(B) Cash on Hand
(1) Definition
Cash on Hand refers to cash held by the Borrower outside of a financial institution.
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5. Performing the Financial Assessment of the Borrower
(2) Standard
The Mortgagee must verify that the Borrower’s Cash on Hand is deposited in a financial institution or held by the escrow/title company.
(3) Required Documentation
The Mortgagee must verify and document the Borrower’s Cash on Hand by obtaining an explanation from the Borrower describing how the funds were accumulated and the amount of time it took to accumulate the funds.
The Mortgagee must also determine the reasonableness of the accumulation based on the time period during which the funds were saved and the Borrower’s:
• income stream;
• spending habits;
• documented expenses; and
• history of using financial institutions.
(C) Retirement Accounts
(1) Definition
Retirement Accounts refer to assets accumulated by the Borrower for the purpose of retirement.
(2) Standard
The Mortgagee may include the value of assets from the Borrower’s retirement accounts, which includes IRAs, thrift savings plans, 401(k) plans, and Keogh accounts. If the Borrower has an existing loan, the Mortgagee must deduct the outstanding loan balance from the value of the retirement accounts.
(3) Required Documentation
The Mortgagee must obtain the most recent monthly or quarterly statement to verify and document the existence and amounts in the Borrower’s retirement accounts, the Borrower’s eligibility for withdrawals, and the terms and conditions for withdrawal from any retirement account.
If any portion of the asset is required for funds to close, evidence of liquidation is required.
(D) Stocks and Bonds
(1) Definition
Stocks and Bonds are investment assets accumulated by the Borrower.
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5. Performing the Financial Assessment of the Borrower
(2) Standard
The Mortgagee must determine the value of the stocks and bonds from the most recent monthly or quarterly statement.
If the stocks and bonds are not held in a brokerage account, the Mortgagee must determine the current value of the stocks and bonds through TPV. Government- issued savings bonds are valued at the original purchase price unless the Mortgagee verifies and documents that the bonds are eligible for redemption when cash to close is calculated.
(3) Required Documentation
The Mortgagee must verify and document the existence of the Borrower’s stocks and bonds by obtaining brokerage statement(s) for each account for the most recent two months. Evidence of liquidation is not required.
For stocks and bonds not held in a brokerage account, the Mortgagee must obtain a copy of each stock or bond certificate.
(E) Private Savings Clubs
(1) Definition
Private Savings Club refers to a non-traditional method of saving by making deposits into a member-managed resource pool.
(2) Standard
The Mortgagee may consider Private Savings Club funds that are distributed to and received by the Borrower as an acceptable source of funds.
The Mortgagee must verify and document the establishment and duration of the club, and the Borrower’s receipt of funds from the club. The Mortgagee must also determine that the received funds were reasonably accumulated, and not borrowed.
(3) Required Documentation
The Mortgagee must obtain the club’s account ledgers and receipts, and a verification from the club treasurer that the club is still active.
(F) Gifts
(1) Definition
Gifts refer to the contributions of cash with no expectation of repayment.
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5. Performing the Financial Assessment of the Borrower
(2) Standards for Gifts
(a) Acceptable Sources of Gifts Funds
Gifts may be provided by:
• the Borrower’s Family Member;
• the Borrower’s employer or labor union;
• a close friend with a clearly defined and documented interest in the Borrower;
• a charitable organization; or
• a governmental agency or that has a program providing homeownership assistance to: low- or moderate-income families; or first-time homebuyers.
(b) Donor’s Source of Funds
Cash on Hand is not an acceptable source of donor gift funds.
(3) Required Documentation
The Mortgagee must obtain a gift letter signed and dated by the donor and Borrower that includes the following:
• the donor’s name, address, and telephone number;
• the donor’s relationship to the Borrower;
• the dollar amount of the Gift; and
• a statement that no repayment is required.
Documenting the Transfer of Gifts
The Mortgagee must verify and document the transfer of Gifts from the donor to the Borrower in accordance with the requirements below.
• For Gifts that will be verified prior to settlement, the Mortgagee must obtain one of the following: the donor’s bank statement showing the withdrawal and evidence of
the deposit into the Borrower’s account; a copy of the donor’s canceled check and evidence of deposit into the
Borrower’s account; a copy of the donor’s withdrawal receipt and evidence of deposit into
the Borrower’s account; or evidence of the electronic transfer of funds from the donor’s account
to the Borrower’s account.
• For Gifts that will be verified at settlement, the Mortgagee must obtain one of the following evidencing payment to the settlement agent: evidence of electronic transfer of funds from the donor’s account;
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5. Performing the Financial Assessment of the Borrower
bank certified check; cashier’s check; or other official bank check .
• For Gifts of land, the Mortgagee must obtain: proof of ownership by the donor; and evidence of the transfer of title to the Borrower.
Regardless of when gift funds are made available to a Borrower or settlement agent, the Mortgagee must be able to make a reasonable determination that the gift funds were not provided by an unacceptable source.
(G) Sale of Real Property
(1) Definition
The Sale of Real Property refers to the sale of Property currently owned by the Borrower.
(2) Standard
Net proceeds from the Sale of Real Property may be used as a source of acceptable funds.
(3) Required Documentation
The Mortgagee must verify and document the actual sale and the Net Sale Proceeds by obtaining a fully executed Closing Disclosure or similar legal document.
The Mortgagee must also verify and document that it is an Arm’s Length Transaction, and that the Borrower is entitled to the Net Sale Proceeds.
(H) Sale of Personal Property
(1) Definition
Personal Property refers to tangible property, other than Real Property, such as cars, recreational vehicles, stamps, coins, or other collectibles.
(2) Standard
The Mortgagee must use the lesser of the estimated value or actual sales price when determining the sufficiency of assets to close.
(3) Required Documentation
Borrowers may sell Personal Property to obtain cash for closing.
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5. Performing the Financial Assessment of the Borrower
The Mortgagee must obtain a satisfactory estimate of the value of the item, a copy of the bill of sale, evidence of receipt, and deposit of proceeds. A value estimate may take the form of a published value estimate issued by organizations such as automobile dealers, philatelic or numismatic associations, or a separate written appraisal by a qualified Appraiser with no financial interest in the mortgage transaction.
(I) Disaster Relief Grants
(1) Definition
Disaster Relief Grants refer to grants from a Governmental Entity that provide immediate housing assistance to individuals displaced due to a natural disaster.
(2) Required Documentation
The Mortgagee must verify and document the Borrower’s receipt of the grant and terms of use.
(J) Employer Assistance
(1) Definition
Employer Assistance refers to benefits provided by an employer to relocate the Borrower or assist in the Borrower’s housing purchase, including closing costs, MIP, or any portion of the monetary investment. Employer Assistance does not include benefits provided by an employer through secondary financing.
A salary advance cannot be considered as assets to close.
(2) Standard
(a) Relocation Guaranteed Purchase
The Mortgagee may allow the net proceeds (the relocation guaranteed purchase price minus the outstanding liens and expenses) to be used as cash to close.
(b) Employer Assistance Plans
The amount received under Employer Assistance Plans may be used as cash to close.
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5. Performing the Financial Assessment of the Borrower
(3) Required Documentation
(a) Relocation Guaranteed Purchase
If the Borrower is being transferred by their company under a guaranteed sales plan, the Mortgagee must obtain an executed buyout agreement signed by all parties and a receipt of funds indicating that the employer or relocation service takes responsibility for the outstanding mortgage debt.
The Mortgagee must verify and document the agreement guaranteeing employer purchase of the Borrower’s previous residence and the net proceeds from sale.
(b) Employer Assistance Plans
The Mortgagee must verify and document the Borrower’s receipt of assistance. If the employer provides this benefit after settlement, the Mortgagee must verify and document that the Borrower has sufficient cash for closing.