4-8: MORTGAGE CREDIT ANALYSIS (11/18/1994)

© HUD Single Family Housing Policy Handbook 4235.1

HUD Mortgage Credit analysis can only be performed by a HUD staff examiner and should comprise the following:

A. Borrower's application. Refer to Appendix 15 to ensure that the URLA and Form HUD-92900-A were completed correctly. The review should include a check of the following:

1) The youngest borrower must be 62 years of age or older by the date the application is signed. The "Age" block in SECTION III must reflect the borrower's current age.

2) The subject property should be listed as the borrower's address, and "Primary Residence" must be checked in SECTION II.
a. The subject property must be the borrower's principal residence, which is defined as the dwelling where the borrower maintains his or her permanent place of abode and typically spends the majority of the calendar year. A person may have only one principal residence at any one time.
b. The property will be considered to be the principal residence of any borrower who is temporarily or permanently in a health care institution as long as the property is the principal residence of at least one other borrower who is not in a health care institution.

3) The principal limit in the "Amount" block in SECTION I should be verified to ensure that it was calculated properly.
a. The lender's calculations should be checked against the procedures outlined in Chapter 5 for determining the principal limit.
b. The expected average mortgage interest rate used by the lender in calculating the borrower's principal limit should be the fixed interest rate or, for an ARM, the U.S. Treasury Securities Rate adjusted to a constant maturity of ten years plus the margin used by the lender in determining the borrower's adjustable rate. The rates used should be those that are in effect on the date that the application is signed.

4) Liabilities from existing liens on the property, delinquent Federal debts, repairs to be completed, and the initial MIP (SECTION VII. Blocks b., d., and n.) should be verified.

5) SECTION IX. must have original signatures to certify to the information on the application.

6) The Mortgage Credit Examiner must complete the entire worksheet in Appendix 18 using the information on the URLA and Addendum. The number of children should be entered regardless of whether or not they are dependent. Information from the worksheet will be entered into CHUMS.

B. Borrower's credit. Review the borrower's credit report to check for any claims or defaults on debts owed to the Federal government, and any existing debts on the property.

1) Generally unsecured debts other than delinquent Federal debts, regardless of their status (e.g., delinquent credit card accounts), should not impact negatively on the borrower's eligibility.

2) Any delinquent Federal debts or liens on the property must not be in excess of the borrower's net principal limit, unless the borrower has a separate source of funds from which to draw. Liens must be removed or subordinated at closing. Conditions should be placed on the Firm Commitment to ensure that this requirement is met.

3) If HUD has previously paid an insurance claim for an insured mortgage on a property owned by the borrower, the borrower is not ineligible for the program if extenuating circumstances caused the foreclosure to occur. However, if extenuating circumstances did not exist, the borrower is ineligible for a reverse mortgage (see Paragraph 4-3).

C. CAIVRS Authorization Code. Review the statement signed by the lender containing the CAIVRS Authorization Code. If the CAIVRS finding indicates that a claim or default against the borrower exists, the local HUD office must notify the lender to have the borrower correct or explain the finding (see Paragraph 4-3).

D. Title evidence. Review the title insurance commitment (or other evidence acceptable to the local HUD office) to ensure that it is at least equal to the maximum claim amount and that the borrower is able to pay off any existing liens at closing.

1) The title evidence should meet the standards required for standard FHA-insured mortgages (24 CFR 203.387 and 203.389 or 234.285).

2) The title insurance commitment must show that the insured first mortgage will be a first lien of record when recorded.

3) Special exceptions limiting title insurance due to the unusual characteristics of a reverse mortgage are not acceptable. For example, the following exceptions are not acceptable:
a. The lack of a stated mortgage term.
b. Negative amortization.
c. Shared appreciation.
d. Compound interest.

4) Where a maximum mortgage amount is stated in the mortgage, the title commitment may contain an exception for loan advances made in excess of that amount.

5) Title insurance is required only for the mortgage to be insured, and not for the second mortgage held by HUD.

E. Certificate of counseling. The certificate from a HUD-approved counseling agency must comply with the model in Appendix 16 and should state that the borrower has received counseling.

F. Identification of the borrower. Copy of a picture identification card, verification of the borrower's Social Security number, and evidence of the borrower's age should be submitted unless conditions for exceptions exist (see Paragraph 4-7F., above).

G. Good Faith Estimate of Settlement Costs. The copy of the signed estimate must be reviewed to verify that the estimate of closing costs is the same as the estimate on the URLA, SECTION VII. Block f.

H. Truth in Lending Act Disclosure Statement. The lender must submit copies of any disclosure statements required by Regulation Z for Open-End Credit.

I. ARM Disclosure Statement -- If the borrower has chosen an adjustable interest rate, the lender must submit a disclosure signed by the borrower that complies with Regulation Z (12 CFR 226).

1) The disclosure statement must include the one-year Treasury rate (index) in effect when the borrower signed the application, and the margin that the lender is using to determine the initial interest rate.

2) Increases of more than one percent to the index, and any increases in the margin after the issuance of the Firm Commitment will require reprocessing of the commitment before the loan can be endorsed.

J. Shared Appreciation Disclosure Statement. If this is applicable, a copy of the statement provided to the borrower, disclosing characteristics of the shared appreciation mortgage and the other options available to the borrower must be signed by the borrower and submitted by the lender.

K. Certification of receipt of closing documents. A certification signed by the borrower must be submitted stating that he or she received copies of the first mortgage, first note, the Loan Agreement, Loan Cost Disclosure Statement, and a Notice to the Borrower explaining the procedures to follow in case of nonpayment or late payments by the lender (Appendix 14), and that the lender explained the principal provisions of the documents.