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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:

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(3-2B.)

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.

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(3-3A.)

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.

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(3-4)

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.

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(3-4)

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.

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(3-5A.)

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.

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(3-5B.)

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.

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(3-5)

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.

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3-6PROTECTIVE 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.

3-7RECEIPT 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.

3-8MAXIMUM 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.

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(3-8)

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.

3-10CASE CANCELLATION. The lender may cancel a case number through

CLAS. Requests are processed without HUD intervention.

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3-10