Senate Passes Flood Insurance Bill

On Jan. 30, 2014, the United States Senate voted 67-32 to approve the Homeowner Flood Insurance Affordability Act (S. 1926), sponsored by Senators Menendez (D-NJ) and Isakson (R-GA).

This bipartisan legislation, an NAR member priority, calls for a 4-year timeout on rate increases triggered either by a property’s sale or a flood map update for a property with previously grandfathered rates. NAR provided Congress with expert testimony suggesting that many of these increases are excessive and inaccurate. The bill also creates a flood insurance advocate within the Federal Emergency Management Act (FEMA) to investigate home owner complaints of multiple different or excessive rate quotes.

The Senate vote sends the measure to the House of Representatives, where Reps. Grimm (R-NY) and Waters (D-CA) have already built an impressive list of 181 co-sponsors in favor of the bill; a total that is 30 votes shy of a House majority NAR will redouble its efforts there to persuade the House leadership to bring a similar bill up for a floor vote at the earliest opportunity

Source:Realtor.com

Think Outside the Shoe Box When Organizing Financial Records

If you've ever had trouble finding an important financial document, you know why it's necessary to keep your financial records organized. Less clutter means less stress, and though you'll need to commit a bit of time up front to organize your files, you can save time and money over the long term when you can find what you need when you need it.

What records do you need to keep?

If you keep paperwork because you "might need it someday," your files are likely overflowing with nonessential documents. One key to organizing your financial records is to ask yourself "Why do I need to keep this?" Documents that you should retain are likely to be those that are related to tax returns, legal contracts, insurance claims, and proof of identity. On the other hand, documents that you can easily duplicate elsewhere are good candidates for the shredder. For example, if you bank online and can view or print copies of your monthly statements and cleared checks, you may not need paper copies of the same information.

 

How long should you keep them?
A good rule of thumb is to keep financial records only as long as necessary. For example, you may want to keep ATM receipts only temporarily, until you've reconciled them with your bank statement. If a document provides legal support and/or is hard to replace, you'll want to keep it for a longer period or even indefinitely.
Records that you may want to keep for a year or less include:
  • Bank or credit union statements
  • Credit card statements
  • Utility bills
  • Annual insurance policies
Records that you may want to keep for more than a year include:
  • Tax returns and supporting documentation
  • Mortgage contracts and supporting documents
  • Receipts for home improvements
  • Property appraisals
  • Annual retirement and investment statements
  • Receipts for major purchases
Records that you may want to keep indefinitely include:
  • Birth, death, and marriage certificates
  • Adoption papers
  • Citizenship papers
  • Military discharge papers
  • Social Security card
Of course, this list is not all-inclusive and these are just broad guidelines; you may have a good reason for keeping some records for a shorter or longer period of time.

Where should you keep them?

Where you should keep your records and documents depends on how easily you want to be able to access them, how long you plan to keep them, and how many records you have. A simple set of labeled folders in a file cabinet works fine for many people, but electronic storage is another option if space is tight.
For example, one easy way to cut down on clutter and still keep everything you need is to store some of your files on your computer. You can save copies of online documents or purchase a scanner that you can use to convert your documents to electronic form. But make sure you keep backup copies on a portable storage drive or hard drive, and make sure that your files are secure.
Another option to consider is cloud storage. Despite its lofty name, cloud storage is simply an online backup service that allows you to upload and store your files over the Internet, giving you easy access to information without the clutter. Information you upload is encrypted for security. If you're interested, look for a company with a reliable reputation that offers automatic backup and good technical support, at a reasonable subscription cost.

Staying organized

Keeping your financial records in order can be even more challenging than organizing them in the first place. One easy way to prevent paperwork from piling up is to remember the phrase "out with the old, in with the new." For example, when you get this year's auto policy, discard last year's. When you get an annual investment statement, discard the monthly or quarterly statements you've been keeping. It's a good idea to do a sweep of your files at least once a year to keep your filing system on track (doing this at the same time each year may be helpful).
But don't just throw your financial paperwork in the trash. To protect sensitive information, invest in a good quality shredder that will destroy any document that contains account numbers, Social Security numbers, or other personal information.
Whatever system you choose, keep it simple. You'll be much more likely to keep your records organized if your system is easy to follow.
Source: SEAN A. HENDERSON Waddell & Reed
210-826-0685 ex: 140   cell: 210-784-6952
This information is prepared by an independent third party, Broadridge Investor Communication Solutions, Inc. and is provided for informational and educational purposes only. Waddell & Reed believes the information has been obtained from sources considered to be reliable, but does not guarantee the accuracy of the information provided. This information is not meant to be a complete summary or statement of all available data necessary for making financial or investment decisions and does not constitute a recommendation.

The Impact of Health-Care Costs on Social Security

For many retirees and their families, Social Security provides a dependable source of income. In fact, for the majority of retirees, Social Security accounts for at least half of their income (Source: Fast Facts & Figures About Social Security, 2013). However, more of that income is being spent on health-related costs each year, leaving less available for other retirement expenses.
   

The importance of Social Security

Social Security is important because it provides a retirement income you can't outlive. In addition, benefits are available for your spouse based on your benefit amount during your lifetime, and at your death in the form of survivor's benefits. And, these benefits typically are adjusted for inflation (but not always; there was no cost-of-living increase for the years 2010 and 2011). That's why for many people, Social Security is an especially important source of retirement income.
    

Rising health-care costs

You might assume that when you reach age 65, Medicare will cover most of your health-care costs. But in reality, Medicare pays for only a portion of the cost for most health-care services, leaving a potentially large amount of uninsured medical expenses.
How much you'll ultimately spend on health care generally depends on when you retire, how long you live, your health status, and the cost of medical care in your area. Nevertheless, insurance premiums for Medicare Part B (doctor's visits) and Part D (drug benefit), along with Medigap insurance, could cost hundreds of dollars each month for a married couple. In addition, there are co-pays and deductibles to consider (e.g., after paying the first $162 in Part B expenses per year, you pay 20% of the Medicare-approved amount for services thereafter). Your out-of-pocket yearly costs for medical care, medications, and insurance could easily exceed thousands of dollars.
    

Medicare's impact on Social Security

Most people age 65 and older receive Medicare. Part A is generally free, but Parts B and D have monthly premiums. The Part B premium generally is deducted from your Social Security check, while Part D has several payment alternatives. In 2013, the premium for Part B was $104.90 per month. The cost for Part D coverage varies, but usually averages between $30 and $60 per month (unless participants qualify for low-income assistance). Part B premiums have increased each year and are expected to continue to do so, while Part D premiums vary by plan, benefits provided, deductibles, and coinsurance amounts. And, if you enroll late for either Part B or D, your cost may be permanently increased.
In addition, Medicare Parts B and D are means tested, meaning that if your income exceeds a predetermined income cap, a surcharge is added to the basic premium. For example, an individual with a modified adjusted gross income between $85,000 and $170,000 may pay an additional 40% for Part B and an additional $11.60 per month for Part D.
Note:   Part C, Medicare Advantage plans, are offered by private companies that contract with Medicare to provide you with all your Part A and Part B benefits, often including drug coverage. While the premiums for these plans are not subtracted from Social Security income, they are increasing annually as well.
   

The bottom line

The combination of rising Medicare premiums and out-of-pocket health-care costs can use up more of your fixed income, such as Social Security. As a result, you may need to spend more of your retirement savings than you expected for health-related costs, leaving you unable to afford large, unanticipated expenses. Depending on your circumstances, spending more on health-care costs, including Medicare, may leave you with less available for other everyday expenditures and reduce your nest egg, which can impact the quality of your retirement.

Source: SEAN A. HENDERSON Waddell & Reed
210-826-0685 ex: 140   cell: 210-784-6952
This information is prepared by an independent third party, Broadridge Investor Communication Solutions, Inc. and is provided for informational and educational purposes only. Waddell & Reed believes the information has been obtained from sources considered to be reliable, but does not guarantee the accuracy of the information provided. This information is not meant to be a complete summary or statement of all available data necessary for making financial or investment decisions and does not constitute a recommendation.

Is a Foreclosure a Bargain or a Nightmare Waiting?

It’s an unfortunate result of the recession — many families haven’t been able to keep up with their mortgage payments and have lost their homes to foreclosure. And foreclosed homes often sell for less-than-market rates, making them seem like a bargain to buyers who are used to the inflated prices of a few years ago. But comparing a new home to a foreclosure on price alone is a mistake. You can’t put a dollar value on your peace of mind, safety, financial reserves and time — all of which could be in jeopardy if you buy a foreclosed home.

For example, a foreclosure could have legal issues. Before buying a foreclosed home you will have to do thorough research — or hire a title company or lawyer — to make sure there aren’t any additional financial or legal liabilities attached to the home. There may be liens on the property for unpaid taxes, home owners’ association dues, or the home may have been put up as collateral on other loans that weren’t paid. You could become liable for thousands of dollars of debt you weren’t aware were attached to the foreclosed home.

As soon as you take ownership of a foreclosed home, anything that breaks or any problems that arise are your responsibility. This could cost you lots of time and money that you may not have budgeted for.

With a new home, maintenance won’t be an issue for a while with the brand-new appliances and systems. And if something does go wrong in the first year, there is often a new home warranty that guarantees repair or replacement.

Foreclosed homes also often haven’t been taken care of by former owners who knew they were going to lose the home. In some cases vandals, thieves or even the owners have damaged the home, removed appliances or torn apart walls to remove copper pipes that are valuable as scrap metal.

A foreclosed home could have been sitting vacant for months or years, and if it wasn’t properly secured, there could be significant damage from water, mold, weather or pest infestations. It could cost you thousands of dollars and a lot of time to bring a home that was allowed to deteriorate back to a livable condition.

You also don’t have to spend time or money changing someone else’s design preferences with a new home. No tearing down wood paneling, repainting walls, or replacing outdated flooring. Your preferences are included as the home is built, and they are there waiting for you the day you unpack your boxes.

With a foreclosure, you don’t know how many renovations or repairs have been made over the years, or who made them. There could be faulty wiring, weakened structures or other conditions that could be dangerous and costly to bring up to safe and modern standards. To protect yourself, make sure you have the home thoroughly inspected during the allotted inspection period that is given to you by the foreclosure company that owns the home.

Source:NAHB

Are You Prepared to Evacuate in an Emergency?

If there comes a time when you have to abandon your house, an emergency probably won’t give you enough time to gather essentials and take steps to limit property damage. Getting all of your ducks in a row before disaster strikes is the best course of action.
How to Get Ready Now
Evacuations in the U.S. are more common than most people realize, according to FEMA. Natural disasters aside, people are forced to leave their homes hundreds of time a year because of transportation and industrial accidents.
Here’s a list of things you can prepare now in case your home is ever in harm’s way:
  • Have a grab-and-go kit. Include essential supplies, such as water, food, and first-aid supplies.
  • Have copies of important papers. Keep these in a plastic, waterproof case. FYI, this stuff is priceless, because you may need to prove who you are and that you own your house. Include:
    • Your driver’s license.
    • The deed to your house.
    • Proof of insurance.
    • Medical records.
    • Passports.
    • Social security cards.
    • A list of personal contacts.
  • Safeguard pets. Make sure they’re micro-chipped and have I.D. collars. Create pet grab-and-go kits that include leashes, medications, meal bowls, and three days worth of food and water.
  • Prep your yard. Maintain your trees and shrubs so diseased or weakened branches won’t fall down and damage your property.
  • Know your utility shutoffs. Learn now how to safely shut off all utility services in your home. FEMA has tips for shutting off electricity, water, and gas. Note: To turn off gas you may need a special wrench.
  • Stockpile sandbag materials. If you live in a flood prone area, keep sandbags on hand or the materials to make them. It takes 100 sandbags to create a 1-foot-tall wall that’s 20 feet long. If you’re filling bags on the fly, two adults can create the wall in about an hour.
  • Protect windows. If you live in an area susceptible to hurricanes, install shutters that are rated to provide protection from windblown debris.
When It’s Time to Evacuate
Before you pick up and go (and if you have enough time) follow these steps — they’re designed to protect your pets and help prevent property damage:
  • Clear your yard. Remove any objects hanging on trees or your home’s exterior, such as birdhouses and wind chimes — they can break off in high winds and cause serious damage. Bring inside anything that’s not nailed down including lawn furniture, trashcans, toys, and garden equipment.
  • Shut off utilities. Turn off electricity, water, and gas. Doing so will help prevent additional dangers including flooding, fire, and explosions. Keep in mind, you’re going to need the utility company to turn your gas back on when you return home.
  • Windproof windows and doors. If you don’t have storm-proof shutters, fit plywood coverings over all windows. (FYI, using just tape on windows is not recommended because it will not stop windows from breaking, just shattering.)
  • Protect indoor stuff. Move valuables to higher levels in your home to prevent water damage. As an extra measure, wrap electronics and furniture in sheets, blankets, or plastic drop cloths.
  • Gather up pets. If it’s not safe for you to stay, it’s not safe for Fido. Make plans to stay with friends or at a pet-friendly hotel — most emergency shelters will only accept service animals that assist people with disabilities.
  • Lock your house. Because crooks and looters take advantage of evacuations, lock all doors and windows and don’t leave house keys in an obvious place, such as a mailbox.
Important Stuff to Remember
Whether the order is voluntary or mandatory, if officials in your area tell you to evacuate, you should do so before things get worse. Although laws vary from area to area, you may receive a hefty fine or face a jail sentence if you don’t follow a mandatory evacuation order.
Failure to follow an evacuation order can place your life in danger by leaving you stranded in an area with no basic services or food and water.
When you return home after an emergency, don’t use matches, lighters, or any sources of flame or spark until you’re 100% certain that you don’t have a natural gas leak inside your home — you’ll need a gas company service technician to confirm that it’s safe.

Stay Informed with Emergency Alerts
Smartphone technology has made it easier to receive disaster alerts free of charge. You’ll automatically receive alerts if you have a phone capable of receiving Wireless Emergency Alerts (WEA) and your wireless carrier participates in the program. To find out if your mobile device is capable of receiving WEA alerts, contact your mobile device carrier or visit CTIA - The Wireless Association

Source: HouseLogic.com - Are You Prepared to Evacuate in an Emergency? by Deirde Sullivan
Read more: http://www.houselogic.com/home-advice/emergency-preparedness/home-evacuation-checklist/#ixzz2ng2QKVia

7 Options for a Reverse Mortgage - Pros and Cons

If you’re thinking of taking out a reverse mortgage to supplement your retirement income, you have seven options. We illustrate the pros and cons of each option here, using as an example a 63-year-old with $100,000 equity in her home with plans to finance the costs of the reverse mortgage.

Option # 1: One Lump Sum
How much you’d get: $51,149 in one payment.
Pros: Useful if you want to invest in something that requires a lot of cash up front, such as starting a small business. You can get a fixed interest rate (all the other options come only as adjustable-rate mortgages).
Cons: You pay interest on the whole amount you borrow. If you don’t need all that money now, you’re paying interest needlessly. Plus, you may not be able to take more out of your house if you run into financial trouble later in life.
 
Option #2: A Fixed Payment Each Month Until You Move Out or Die
 How much you’d get: $300 maximum each month for life.
Pros: The payments continue as long as you live in the house — even if you live to be 101 years old, you’ll still be getting that monthly payment.
Cons: You have to swap into a different payment option if you need a lump sum in the future, say for a large, unexpected home repair.

Option #3: A Set Amount of Cash for a Fixed Period of Time 
How much you’d get: $966 a month for five years, $562 for 10 Years, $432 for 15 years, or $371 for 20 years.
Pros: Useful if you need income to cover a monthly payment that’s only going to last a certain amount of months, such as a car payment that ends in two years, or if you need income to tide you over while you wait for another source of income to start coming in, such as from an annuity.
Cons: Compare the cost of taking a sum at the beginning of your mortgage and using that to pay off your car (or other debt) instead of using the monthly term mortgage payment for that bill.
Option #4: A Line of Credit
Pros: You only pay interest on the cash you need each month. You can take more cash when you have unexpected expenses, such as needing a new furnace. Each year that you don’t use it, your line of credit increases because your life expectancy decreases by a year.
Cons: If you take out too much money, you can drain your line of credit.
 
Option #5: A Lump Sum, Plus Line of Credit 
How much you’d get: Depends on the size of your lump sum. With a $20,000 initial lump sum, you’d get a $29,459 credit line. With a $30,000 lump sum, you’d get a $19,459 credit line.
Pros: You can pay off your current mortgage and have extra money in case of future emergencies.
Cons: If you spend down your credit line you may not have money available to pay future expenses like long-term care.

Option #6: Monthly Payments Until You Move or Die, Plus Line of Credit 
How much you’d get: Depends on the size of the credit line. With $20,000 credit line, you’d receive $179 a month. With a $30,000 credit line, you’d receive $118 a month.
Pros: You’ll have a check every month to help with living expenses and a line of credit to cover unexpected expenses. You only pay interest on the cash you take.
Cons: You have to pay an adjustable interest rate to get this or any of the other plans that pay you monthly. If interest rates rise, the reverse mortgage balance you (or your heirs) have to repay rises. That leaves you (or your heirs) with less profit when your home is sold to repay the reverse mortgage after you move out or pass away.
 
Option #7: Monthly Payments for a Fixed Term, Plus Line of Credit
Pros: Good if you have a bill to pay every month for a set number of months, such as a personal loan you’re paying off, and you’d like a line of credit for unexpected expenses.
Cons: It may be cheaper to pay off that personal loan with a lump sum, depending on what the interest rates are for your personal loan and your reverse mortgage.

Changing Your Reverse Mortgage Option
Still, it’s better to pick the right plan from the get-go, so think about what you need to use the cash for and how that monthly reverse mortgage payment fits in with your overall financial plan.

Source: HouseLogic.com: Pros and Cons of the 7 Options for a Reverse Mortgage by Dona DeZube
Read more: http://www.houselogic.com/home-advice/reverse-mortgages/reverse-mortgage-loans-pros-cons/#ixzz2ng0uoK8Z


What You Should Know About Your Home and Your 2013 Taxes

These days few things start a fight on Capitol Hill faster than taxes. Despite the fact that three important tax benefits used by millions of American homeowners are days from expiring, Congress is unlikely to do anything to re-up them any time soon.

So if you’re eligible, tax year 2013 is possibly the last time to claim the private mortgage insurance (PMI) deduction, the energy tax credit, and debt forgiveness benefit, all of which all expire on Dec. 31, 2013.

At least there’s one piece of good news for homeowners: If you have a home office, there’s a new, simpler option for calculating the home office deduction for which you may qualify on your 2013 taxes.

Meanwhile, here’s what you need to know about those expiring benefits as you ready your taxes:

PMI Deduction

This tax rule lets you deduct the cost of private mortgage insurance, which is what you pay your lender each month if you put down less than 20% on a home. PMI protects the lender if you default on the home loan. Your deduction could amount to a couple hundred dollars depending on your tax bracket and other factors.
Find out if you qualify for and how to take the PMI deduction.

Energy-Efficiency Upgrades

This sweet little tax credit lets you offset what you owe the IRS dollar-for-dollar for up to 10% of the amount you spent on certain home energy-efficiency upgrades, from insulation to water heaters. On the downside, the credit is capped at $500 (less in some cases). But on the bright side, the right improvement could lower your utility bills indefinitely.

Related: Take back your energy bills with these high-ROI energy-efficiency practices.

Debt Forgiveness

When you go through a short sale, foreclosure, or deed-in-lieu, your lender typically lets you off the hook for some or all of what you owe on your mortgage.

That forgiven mortgage debt is income, on which you’d typically have to pay income tax.

Suppose you’re in financial distress and your lender agrees to let you short-sell your home, say for $50,000 less than you owe on the mortgage, and forgive you for the balance. Without the protection of the Mortgage Debt Forgiveness Act, you’ll owe income tax on that $50,000.

It’s likely if you had the money to pay income tax on $50,000, you’d have used it to pay your mortgage in the first place.

New Simplified Option for the Home Office Deduction

This may be the last year for the benefits above, but a new one kicks in for the 2013 tax year. If you work from home, you may qualify to use a new, simplified option for claiming the home office deduction when you file your 2013 taxes.

How much simpler is it? It lets you claim $5 per sq. ft. for up to 300 sq. ft. instead of having to compute the actual expenses of your home office using a 43-line form. To calculate the square footage of your office, just multiply the length of two walls. For example, an 8-by-10-foot room is 80 sq. ft. And at $5 per, that’s $400.

Although using the simplified option is obviously easier, the basic requirements for claiming the home office deduction haven’t changed. Your home office still must be used for business purposes:
  • Exclusively, and
  • On a regular basis.
Related: Which Home Office Set-Ups Qualify for a Deduction?

Why Might the Tax Benefits Not Be Renewed?

Although the expiring tax benefits were renewed retroactively in past years, that may not happen in 2014 because many in Congress would like to see comprehensive tax reform rather than scattershot renewals of individual provisions. This could delay a decision on the homeownership tax benefits until the big picture budget and tax issues are resolved.

Source:HouseLogic -What You Should Know About Your Home and Your 2013 Taxes by Dona DeZube  Read more: http://www.houselogic.com/blog/tax-deductions/tax-deductions-credits-for-homeowners-2013/#ixzz2nfx5Wfgn

Is Your Home Showing More Than Its Age?

Would you throw away $20,000? You are if you’re letting your home age faster than it should. Here’s a simple maintenance strategy to keep your home young.

You know how Dr. Oz says that if you keep your body fit and your mind nimble, you’re likely younger than your chronological years? The same principle applies to your house.
An out-of-shape house is older than its years and could lose 10% of its appraised value, says Mack Strickland, an appraiser and real estate agent in Chester, Va. That’s a $15,000-$20,000 adjustment for the average home.
But good maintenance can even add value. A study out of the University of Connecticut and Syracuse University finds that regular maintenance increases the value of a home by about 1% each year.
So if you’ve been deferring maintenance, or just need a good strategy to stay on top of it, here’s the simplest way to keep your home in good health.

Focus on Your Home’s #1 Enemy
If you focus on nothing else, focus on moisture — your home’s No. 1 enemy.
Water can destroy the integrity of your foundation, roof, walls, and floors — your home’s entire structure. So a leaky gutter isn’t just annoying; it’s compromising your foundation.
Keeping moisture at bay will improve your home’s effective age — or as Dr. Oz would say, “real age” — and protect its value. It’ll also help you prioritize what you need to do.

1.  When it rains, actively pay attention. Are your gutters overflowing? Is water flowing away from your house like it should? Is water coming inside?

2.  After heavy rains and storms, do a quick inspection of your roof, siding, foundation, windows, doors, ceilings, and basement to spot any damage or leaks.
 
3.  Use daylight savings days or the spring and fall equinox to remind you to check and test water-related appliances like your washer, refrigerator, water heater, HVAC (condensation in your HVAC can cause leaks) or swamp cooler, and sump pump. It’s also a great time to do regular maintenance on them. Inspect any outdoor spigots and watering systems for leaks, too.

4.  Repair any damage and address any issues and leaks ASAP.
Don’t procrastinate when you spot minor leaks or drips inside your house. Ongoing small leaks can slowly erode pipes and fixtures, and even cause mold and mildew issues you won’t notice until it’s too late.

Say you’ve got a bit of cracked caulk around the kitchen window. It may not seem like much, but behind that caulk, water could get into your sheathing, causing mold damage and rot. Before you know it, you’re looking at a $5,000 repair that could have been prevented by a $4 tube of caulk and a half hour of your time.

Source: Is Your Home Older Than Its Years? By: Lara Edge
Read more: http://www.houselogic.com/home-advice/maintenance-repair/home-maintenance-schedule/#ixzz2nfuHwave

HUD Releases ‘Qualified Mortgage’ Definition

The U.S. Department of Housing and Urban Development (HUD) released its final rule which defines a ‘Qualified Mortgage (QM)’ that is insured, guaranteed or administered by HUD. The final rule will be effective on January 10, 2014 and will apply to mortgages with a case number assignment on or after that date. Read HUD’s final rule.
The Dodd–Frank Wall Street Reform and Consumer Protection Act requires HUD to propose a QM definition that is aligned with the Ability-to-Repay criteria set out in the Truth-in-Lending Act (TILA) as well as the Department’s historic mission to promote affordable mortgage financing options for underserved borrowers. HUD’s rule builds off of the existing QM rule finalized by the Consumer Financial Protection Bureau (CFPB) earlier this year.
In order to meet HUD’s QM definition, mortgage loans must:
  • Require periodic payments without risky features;
  • Have terms not to exceed 30 years;
  • Limit upfront points and fees to no more than three percent with adjustments to facilitate smaller loans (except for Title I, Title II Manufactured Housing, Section 184,Section 184A loans and others as detailed below); and
  • Be insured or guaranteed by FHA or HUD.
Currently, HUD does not insure, guarantee or administer mortgages with risky features such as loans with excessively long terms (greater than 30 years), interest-only payments, or negative-amortization payments where the principal amount increases. Moreover, HUD’s existing underwriting standards require lenders to assess a borrower’s ability to repay their mortgage debt. The new limit on upfront points and fees for all Title II non-manufactured housing FHA-insured single family mortgages is consistent with the private sector and conventional mortgages guaranteed by Fannie Mae and Freddie Mac to attain qualified mortgage status under CFPB’s final rule.

The rule establishes two types of Qualified Mortgages that have different protective features for consumers and different legal consequences for lenders. HUD’s Qualified Mortgage classifies a loan as either Rebuttable Presumption Qualified Mortgages or Safe Harbor Qualified Mortgages depending on the relation of the loan’s Annual Percentage Rate (APR) to the Average Prime Offer Rate (APOR), the rate for the average borrower receiving a conventional mortgage. The two categories of Qualified Mortgages are:
A Rebuttable Presumption Qualified Mortgage will have an APR greater than APOR + 115 basis points (bps) + on-going Mortgage Insurance Premium (MIP) rate. Legally, lenders that offer these loans are presumed to have determined that the borrower met the Ability-to-Repay standard. Consumers can challenge that presumption, however, by proving that they did not, in fact, have sufficient income to pay the mortgage and their other living expenses.

Safe Harbor Qualified Mortgages will be loans with APRs equal to or less than APOR + 115 bps + on-going MIP. These mortgages offer lenders the greatest legal certainty that they are complying with the Ability-to-Repay standard. Consumers can still legally challenge their lender if they believe the loan does not meet the definitions of a Safe Harbor Qualified Mortgage.

Furthermore, HUD’s rule covers Title II manufactured housing, Title I manufactured housing and property improvement loans, Section 184 Indian Home Loan Guarantee Program mortgages and Section 184A Native Hawaiian Housing Loan Guarantee Program mortgages.. The rule designates loans insured under these programs as Safe Harbor Qualified Mortgages regardless of upfront points/fees and APR to APOR ratio so as not to interfere with current lending practices until appropriate parameters can be determined.

HUD also adopts CFPB’s list of transactions that are exempt from the ability-to-repay requirements, which includes Reverse Mortgages; Bridge loans with a term of 12 months or less; Construction-to-permanent loans for 12 months or less for the construction phase; Extension of credit by a Housing Finance Agency; Extension of credit by Community Development Financial Institutions; Extension of credit made pursuant to a program authorized by sections 101 and 109 of the Emergency Economic Stabilization Act of 2008; Downpayment Assistance through Secondary Financing Provider made pursuant HUD’s regulations; Community Housing Development Organization (CHDO) provided that the creditor has entered into a commitment with a participating jurisdiction and is undertaking a project under the HOME program; A 501(c)(3) organization that secured no more than 200 dwellings in the prior calendar year to consumers with income that did not exceed the low- and moderate-income household limit as established pursuant to section 102 of the Housing and Community Development Act of 1974 (42 U.S.C. 5302(a)(20)) and the creditor determines, in accordance with written procedures, that the consumer has a reasonable ability to repay the extension of credit.

HUD’s mortgage insurance and loan guarantee programs play a central role in the housing market and act as a stabilizing force during times of economic distress, facilitating mortgage financing during periods of severe constriction in conventional markets. The final rule aims to ensure the continuity of access to mortgage financing to creditworthy, yet underserved borrowers while further strengthening protections for FHA borrowers and taxpayers, alike.