6-9: REQUIREMENTS FOR CLOSING (11/18/1994)

© HUD Single Family Housing Policy Handbook 4235.1

At or before closing, the following must be accomplished:

A. During the application process, in order to provide the borrower with an estimate of his or her principal limit and to allow the local HUD office to verify that the correct indices are being used, the lender should use the indices in effect at the time the application is signed. The lender MUST recalculate the principal limit at closing using the indices in effect on the day of closing.

B. On the day of closing, the lender must determine the principal limit, expected rate, mortgage interest (accrual) rate, and the margin (if applicable). The expected rate is needed to calculate the principal limit and payment plan for all borrowers, and is also the accrual rate for fixed-rate HECMs. The mortgage interest rate is needed to calculate the first year accrual rate for adjustable- rate HECMs. The lender MUST use the indices in effect on the date of closing.For adjustable-rate mortgages, HUD does not require that the lender round either the expected rate or the ARM note rate. Therefore, the lender may round both rates, only one rate, or none of the rates. However if the lender chooses to round either rate, the rate must be rounded to the nearest one-eighth (1/8) of a percentage point (i.e., the nearest 1/8th either up or down) and must be rounded throughout the life of the loan. Whether or not a lender decides to round the rates may depend on the preference of the secondary market investor. Lenders should check with their investors to determine if rounding will be required. If the mortgage interest rate is rounded, the lender should refer to the footnotes of Appendices 3 and 6 for instructions on appropriate changes to the First and Second Adjustable-Rate Notes.

C. The ten-year Treasury rate is the index which must be used to establish the expected rate, and the one-year Treasury rate is the index which must be used to establish the mortgage interest (accrual) rate for adjustable-rate HECMs. Both indices are published in the Federal Reserve Bulletin and are made available by the Federal Reserve Board in Statistical Release H.15(519). This is a national index, which can be obtained from the Federal Reserve Board, by requesting to be placed on the mailing list for receipt of the weekly H.15 publication. The address is:

D. If the mortgage interest rate (or the index for ARMs) has increased by more than one percent or the margin has increased at all since the Firm Commitment was issued, the commitment must be reprocessed before the loan can close. The lender is also required to provide the borrower with a new ARM Disclosure Statement indicating the new rate.

E. On ARMs, the lender must use the one-year Treasury rate (to establish the initial mortgage interest rate) and the ten-year Treasury rate (to establish the expected rate) from the same day.

F. The borrower must choose his or her initial payment plan, which identifies the method by which he or she wishes to receive the mortgage proceeds.

1)The lender should encourage the borrower to establish a line of credit along with monthly payments, if he or she has not done so, to avoid incurring unnecessary costs and inconvenience when unexpected expenses occur.

2)At closing, the borrower will receive the payment plan (Appendix 13) that he or she has selected.

3)The borrower must sign the plan, indicating that he or she has chosen the options contained on the plan.

4)Whenever the borrower changes a payment option or has his or her payments recalculated, the borrower will receive a payment plan, and will be required to sign the plan.

G. The lender must prepare the HUD-1 Settlement Statement (or other similar statement approved by HUD) at least one business day before closing. The borrower must be allowed to inspect the statement one business day before closing. As part of HUD's ongoing effort to strengthen quality control procedures, HECM lenders are required to obtain certifications to the HUD-1 Settlement Statement from the borrower(s) and settlement agent. The borrower(s) and settlement agent in a HECM transaction must sign the applicable certifications below, which must be printed at the bottom of the HUD-1, or attached to the HUD-1 as an addendum:

I have carefully reviewed the HUD-1 Settlement Statement, and to the best of my knowledge and belief, it is a true and accurate statement of all receipts and disbursements made on my account or by me in this transaction. I further certify that I have received a copy of the HUD-1 Settlement Statement.
	_____________________________	__________________
	_____________________________	__________________
	Borrower(s)	(Date)

To the best of my knowledge, the HUD-1 Settlement Statement which I have prepared is a true and accurate account of the funds which were received, and have been or will be disbursed, by the undersigned as part of the settlement of this transaction.
	_____________________________	__________________
	Settlement Agent	Date

	WARNING: It is a crime to knowingly make false statements to the United States on this or any other similar form. Penalties upon conviction can include a fine and imprisonment. For details see Title 18 U.S. Code Section 1001 and Section 1010.