Assets & Other Qualification Topics

INCOME QUALIFICATION PROCESS: ASSETS AND OTHER TOPICS

Question:
Is a monthly payment of $1,500 from a 401K retirement account included among sources of household income when calculating the income eligibility of an applicant?
Answer:
The 401K is an asset owned by the applicant. The monthly payment is, therefore, income from an asset. The monthly payment will be included as income unless the applicant can demonstrate that the amounts received do not exceed the amount of the original 401K investment. HUD Handbook, 43350.3, Section 5-6 (N) addresses the topic of “Withdrawal of Cash or Assets from an Investment.” The withdrawal of cash or assets from an investment received as periodic payments should be counted as income unless an applicant can document that the amounts withdrawn are reimbursement of amounts invested. When an applicant is making regular withdrawals from an account in which he/she has made an investment, the withdrawals will count as income only after the amount invested has been totally paid out. An example to consider is as follows:
Josefina and Rodrigo Gomez have received $300 a month from an annuity for 9.5 years. The Gomez’s paid $36,000 for the annuity when they purchased it years ago. Six months after the current annual recertification becomes effective, the Gomez’s will have reclaimed the full amount of their investment. For the second 6 months of the coming year, therefore, the owner will include the $300 monthly payment from the annuity as income. Remember, this $300 monthly payment is income from an asset and must be documented properly. On the income certification page, list the 401K among the household’s assets on the bottom of the first page. List the cash value of this retirement account and then list the actual income from the asset. In this case, $300 x 6 months= $1,800.

Question:
I am documenting an applicant’s assets for purposes of determining his income eligibility. The applicant has a retirement account into which his employer makes contributions. The money in this account cannot be withdrawn until the applicant leaves this job. Since the applicant could conceivably quit his job in the upcoming 12 months, should I count the retirement account as an asset?
Answer:
Do not count this retirement account as an asset. The answer to this question is addressed directly in Chapter 5 of the HUD Handbook 4350.3. Section G provides a helpful guide for documenting and counting a wide variety of assets. Section G-4 specifically addresses retirement accounts. It notes that “balances held in retirement accounts are counted as assets if the money is accessible to the family member… Amounts that would be accessible only if the person retired are not counted… While an individual is employed, count only amounts the family can withdraw without retiring or terminating employment.”


Question:
I have discovered that an applicant recently gave $1500 cash gifts to each of her three adult children. Do I count the amount of these cash gifts as one of the applicant’s assets? Is this considered an “asset disposed of for less than fair market value”?
Answer:
Yes, in this case you will count the cash gifts provided to these adult children as an asset of this household. This issue is outlined in the HUD Handbook 4350.3, Chapter 5. Look in the section entitled 5-7 “Calculating Income from Assets” and refer to subsection G. 6, which notes that “any asset that is disposed of for less than its full value is counted, including cash gifts”. You must consider this section for any asset that the applicant has deposed of during the past two year. There is even an example that follows this section that describes cash gifts provided to adult children. The Handbook indicates that you must count these cash gifts if they amount to more than $1000 in value.


Question:
A SHIP client has an IRA rollover account which provides her with $300 on income each month. I am accustomed to recording IRAs as assets, but is this case different? Should I record this $300 of monthly income among other sources of regular income, like social security payments or employment income? Or should I count the IRA as both an asset and a regular income source?
Answer:
At first glance, this scenario might seem to be a case where you have to record the IRA as both an asset and as a source of a steady stream of income. Yet you should only record the IRA as an asset. On the first page of the income certification form, list the cash value of the IRA. You must also record the actual income from the asset—in this case, the actual income is the $300 monthly payment that the applicant receives from the IRA. If the total value of this and the applicant’s other assets is over $5000, you will also need to calculate the imputed income from this asset. In the end, you will record either the actual income or the imputed income (whichever is greater) as one of the household’s sources of income on the second page of the income certification form. In most cases, like the one you discuss, the amount of actual income paid by the IRA will be a larger sum of money than the imputed income from the asset, so the actual income will be reported on the second page of the income certification form as the income from this asset.


Question:
Please help me calculate the annual income from a SHIP applicant who has a 401K retirement account. The applicant is retired and she withdraws $1500 monthly from the retirement account. The current account balance for the 401K is $30,000. Is this the figure I should use for the cash value of the 401K asset? Or should the cash value be less, to take into account that $18,000 will be paid to the applicant over the course of a year?
Answer:
The cash value of this 401K asset is the anticipated balance of the account at the end of the year, including interest earned. The answer to this question comes directly from Chapter 5 of HUD Handbook 4350.3, which outlines the income qualification process for the SHIP program. The
Coalition can provide you with a free electronic copy of the HUD Handbook, if you would like to request this lengthy document. Section 1, Part 5-7 of the Handbook addresses the calculation of
income from assets. In this section, item G. “Calculating Income from Specific Assets” provides the answer to your first question about the cash value as part of the following example:
“Stephen King is retired. Each month he withdraws $1,000 from his IRA account. The balance in his IRA account is $200,000. The balance in his IRA at the end of the year, including interest earned, will be $194,000. That is the amount that should be counted as an asset” (HUD Handbook, Section 1, Part 5-7, G. 2. b. (2)).



Question:
An applicant has guardianship of a grandchild. There is a savings account that the applicant does not have access to unless a court order is provided. Do I count the savings account as an asset?
Answer:
No, HUD 4350.3 requires you to only count assets for which the person has access. In this
case, the applicant does not have access even though they he/she has guardianship of the child.


Question:
An applicant has custody of her children for only part of the year. Do I count the children as part of the number of individuals in the household?
Answer:
You count the children in the household if they live with the applicant for 50 percent or more of the year. Properly document this with school records, court documents, or other records that indicate that the child's permanent address is with the applicant. If an applicant has joint custody of his or her children for 50 percent of the year, you can count the children as a household member. Each parent in a joint custody arrangement has significant expenses for children. They must provide clothing, a bed and perhaps a room, food and other items for the children. For this reason, the children should be included among the members in a household.

Question:
An increasing number of employers are not directly responding to our verification for employment forms. Instead, these employers subcontract this income verification activity to a company that requires SHIP administrators to pay a fee for receiving verification information. On occasion, I have to call a 1 (900) telephone number to contact the verification company. How should I proceed with my verification process in cases like these?
Answer:
The SHIP program requires that the primary source of income eligibility documentation is third party verification forms. It should be a priority to receive third party income verification in written form or—if necessary—oral confirmation over the phone. Fortunately, SHIP administration expenses can be used to pay for any fees associated with paying for this information—including telephone fees for a (900) telephone number to contact a verification company. These fees are a cost of properly implementing the SHIP program and are, therefore, eligible administrative expenses. Some SHIP communities have had success in getting a verification company to waive this fee, since the information is being requested to assist by a “social service organization” offering assistance to an employee. If, for some reason, you are not physically able to make a (900) telephone call from your office, other options are available. Recruit your applicant to help you. He or she may be able to appeal to a supervisor to fill out the verification form. Alternatively, you may be able to get the needed verification information by phone from the supervisor. On rare occasions, none of these options is available. As an absolute last resort, use whatever written documentation is available—including pay stubs and tax returns—to document an applicant’s employment income. You must fully document in the applicant’s file all of your attempts to obtain third party verification.

Question:
How do we treat assets when computing annual income?
Answer:
All income from assets must be added to anticipated annual income, regardless of the cash value or combined cash value of the asset(s). If the value of a single asset or combined value of multiple assets is greater than $5000, then an imputed value is taken (multiply value by 2 percent) and then compared to actual income earned - the higher number is then added to the other forms of income to get the total anticipated annual income. If the value of an asset or combined assets does not exceed $5000 and the actual income is not known, then the amount of asset income added to annual income is zero. In all cases, always document the file that the calculation was done both ways.

Question:
If an applicant owns a second home which is occupied by relatives, and receives no rents on the home, is it counted as an asset when computing total household income?
Answer:
Yes. All real property is counted as an asset. The value of this second home must be listed among other assets on the first page of the SHIP income certification form. In this case, no rent is received, so indicate that there is no income from this asset.

Question:
One of the applicants for my rehabilitation strategy has a second home that she rents out. I know that this second home is considered an asset and that the rent she collects is the actual income derived from this asset. Should I deduct the mortgage payments and maintenance costs that the applicant pays from this source of asset income and only count the net income after expenses? Answer:
Yes. HUD has recently provided clarification on how to treat income from rental property. Appendix 15 of the newly revised HUD Handbook 4350.3 addresses this issue. It notes that you can use the IRS’s Schedule E of the 1040 form as a guide for subtracting expenses from gross rent. Schedule E outlines a variety of expenses that can be deducted from gross rent payments, including mortgage interest paid to banks, taxes, insurance, cleaning and maintenance, repairs, advertising and utilities. These are, therefore, the expenses that can be deducted from gross rent payments to be received in the 12 months. Refer to section 15-C (M) of the Handbook appendix for a list of acceptable documents to collect to verify this asset income. These materials will document the applicant’s recent rental expenses and help estimate expenses for the next 12 months. It is likely that the largest expense will be mortgage interest that is paid to banks. Look at the bank amortization schedules provided by your applicant to calculate the exact amount of interest that will be paid in the next 12 months. Rely on reasonable estimates to calculate the deductions for taxes, insurance, repairs and other expenses.
The income from rental properties should be handled in a different manner if the applicant receives a majority of her income from rental property management. Exhibit 5-2 in Chapter 5 of the HUD Handbook addresses this scenario, “NOTE: If the person’s main business is real estate, then count any income as business income under paragraph 5-6 G of the chapter. Do not count it both as an asset and business income.” (HUD Handbook 4350.3, Ch. 5, Exhibit 5-2 (A)(3)).
Remember, once you have calculated the actual income from the rental property asset, you will have to compare this to the "imputed income" if the total value of the applicant’s assets exceed $5,000. The cash value of a rental property asset is its market value minus reasonable costs that would be incurred in selling or converting the asset to cash. You must also subtract the remaining mortgage on the rental property to derive the cash value.

Question:
When I work to determine the income eligibility of an applicant, I sometimes find
situations when I am unsure whether or not to count certain individuals as household members in order to properly determine the size of the household. Where can I look
for guidance when these questions come up?
Answer:
It is important to accurately determine the size of a household, since the household’s income eligibility is adjusted for family size. The income eligibility level is lower for households having fewer than four people, for example, and higher for households having more members.
You start the process of determining household size by reviewing the household members that the applicant has listed on the application form. Count individuals who will permanently live in
the household during the next 12 months as household members, unless given guidance to the contrary. You count individuals even if they are not relatives of the applicant—for example, an
applicant may have a boyfriend who lives in the house. He is a household member and his income must be included in the calculation of overall household income.
Chapter 3 of the HUD Handbook 4350.3 provides written guidance on many situations where you may be unclear about whether or not to count an individual. Section 3-6, subsection E, provides a list of types of individuals to count or exclude as household members. This section notes, for example, that household members include children who are away at school but who live with the family during school recesses. In addition, count children with joint custody arrangements who are present in the household 50% or more of the time, and document the custody with a divorce decree or written statements from the parents. Conversely, the Handbook notes that you will not count foster children or foster adults, since they are only temporarily living with the household. “Unborn children” of pregnant women are counted as part of the household, as well as children in the process of being adopted. Some household members may be counted even if they are temporarily absent from the home for a work assignment, training or some other reason. The Handbook even outlines a case involving persons permanently confined to a hospital or
nursing home. This is the only instance in which the Handbook gives the SHIP applicant a choice as to whether or not to include the person as part of the household. Naturally, if the person is
counted, then his or her income will be added to overall household income.

The Handbook discusses at some length the status of a live-in aide. Such a person resides with one or more elderly persons, near-elderly persons, or persons with disabilities, but is not considered a household member. The aide is excluded even if he or she is a family member, so long as the aide can demonstrate that he or she “is not obligated for the support of the person(s) and would not be living in the unit except to provide the necessary supportive services.”

One final scenario should be considered. In some situations, an applicant is planning to get married sometime in the 12 months following receipt of SHIP assistance. Staff at the Florida Housing Finance Corporation has indicated that a fiancée who is not currently living with the applicant should not be counted as a household member. The fiancée is not counted because the upcoming marriage has not yet happened and cannot be verified. However, there is an exception to this policy. If the SHIP applicant is buying a home and has applied for a first mortgage along with the fiancée, then the SHIP administrator now has sufficient documentation to demonstrate that the fiancée will reside in the house. In this case the fiancée is counted as a household member. Determining the correct size of an applicant’s household can sometimes be a complicated matter. Refer to Section 3-6 (E) of the HUD Handbook 4350.3 for written guidance. In addition, the Florida Housing Coalition is available for consultation on this subject. Call (850) 488-4197 with your questions.


Question:
Our community is still providing assistance with our 2009/2010 SHIP allocation dollars. When calculating an applicant's income eligibility, should we use the 2009 income limit chart for our area, or the more recent chart that we have received?
Answer:
Always use the most recent, updated income chart to calculate an applicant's eligibility for the SHIP program. The new income guidelines are distributed by the Florida Housing Finance Corporation (usually between February and April of each year) and should be used as your new, updated guidelines as soon as they are received, regardless of which allocation year the assistance comes from. Some communities use SHIP funds for rental strategies that require them to check tenants for income eligibility each year for fifteen years. In these cases also, the newest income guidelines should be used each year when annual re-certification takes place.

Question:
What is the "120 day clock?" Does the letter of commitment legally require a SHIP jurisdiction to provide assistance even if the applicant’s change in income now places him or her above the level of income eligibility?
Answer:
The "120 day clock" refers to the period of time during which third party income and asset verification forms are considered to be up-to-date and valid. The HUD Handbook 4350.3 recognizes that verification forms can only be considered accurate and current for a certain length of time: "Verifications are valid for 90 days from the date received. If the information is orally updated by the source, these verifications may stand for an additional 30 days. You may not rely on verifications that are more than 120 days old." Source: HUD Handbook 4350.3, Chapter 3 Section 2 Subsection C. Part 3-32 a. (2) If more than 120 days passes from the time that you have received a verification form, you must get a new, updated verification form.
Here are activities that will "stop the 120 day clock." Any one of the following activities will enable you to turn your attention from getting current household income information to proceeding with the other activities involved in helping the applicant. The 120 day clock will stop when: 1.The local government issues an award letter (also called a letter of commitment) to the applicant after a certification form has been executed. This letter will encumber SHIP funds to this specific household, or 2.The local government and applicant sign a construction contract to proceed with rehabilitation services on the applicant's home.
Once an award letter is issued or a rehabilitation contract is executed, the 120 day clock stops and you do not have to obtain new, updated verification forms, even if you have not completed your assistance to the client within 120 days. You never again have to ask the applicant income-related questions. Of course, an applicant can also be fully assisted within the 120 day period. In such a case, it is also possible to verify income, certify a household as income eligible, and then not issue a commitment letter, but assist an applicant and fully expend SHIP funds before 120 days expires. In such a case, the 120 day rule is moot.
On occasion, an application may provide information that the household size or income has changed since the 120 day clock stopped. In such instances, contact the Florida Housing Coalition or the compliance office at the Florida Housing Finance Corporation to determine on a case by case basis whether or not to re-calculate the applicant's income and eligibility.

Learning More About The “120 Day Clock”
Please help me clarify my understanding of the “120 day clock” used during the SHIP income qualification process. My co-worker believes that an award letter stops the 120 day clock, but that the income qualification work she has completed for a household only remains updated and accurate for the next 12 months. Is this true?
Answer:
Your co-worker’s approach is considered a “best business practice.” To understand why,
it is important to first review the role of the “120 day clock.” The “120 day clock” refers to the period of time during which third party income and asset verification forms are considered to be up-to-date and valid. If more than 120 days passes from the time that you have received a verification form, you must get a new, updated verification form. For a more detailed explanation of the 120 day clock, read the SHIP FAQ on the Coalition’s Web site: www.flhousing.org. Often, a SHIP administrator will issue the eligible applicant an award letter to “stop the clock” and allow the administrator to proceed with the other activities involved in helping the applicant. Remember, however, that you must re-calculate income eligibility if you learn about a change in household income before the applicant has been assisted with SHIP funds—even if you have already issued an award letter. Now consider your question: What if an applicant has still not received SHIP assistance a year after receiving an award letter? It is a “best practice” for SHIP staff to re-verify that a household is income eligible for SHIP assistance if more than 12 months have elapsed since the city presented the household with an award letter. This makes sense: ultimately, you can only provide assistance to income eligible households. Income can change in a year–you would be wise to re-verify that an applicant is still eligible if he or she has been waiting for such a long period of time.

Follow-Up Question: I understand the best practice that you describe. However, adopting this practice would greatly affect the way we implement our local SHIP program. When we receive a new SHIP allocation each summer, we accept a larger number (over 50) of new applications for assistance. We determine each applicant’s income eligibility on the front end and issue award letters. With so many households requesting assistance, however, some people with award letters will not receive assistance for well over a year. How can we avoid the extra and required work that you describe for re-calculating a household’s eligibility?
Answer:
In the future, you could implement an alternative practice: Place people on a waiting list, but do not complete the formal income verification and certification process on all these applicants at one time. Instead, perform the income qualification process on the first five or 10 people on this list, and provide them assistance in a timely manner. When you are almost finished assisting them, perform the income qualification process on the next handful of applicants on the list... and so on. In this manner, you will issue award letters only to the applicants who will receive assistance within the next month or two. With less time transpiring between the determination of income eligibility and the provision of SHIP assistance, it will be less likely that the applicant’s income has changed. This should reduce the time you devote to updating and re-calculating an applicant’s income eligibility. Explain to those put on the waiting list that they have not been approved for SHIP funding until the formal income qualification process is complete.

Question:
In a previous SHIP Clip answer, you outlined a scenario when an administrator learns that an applicant’s income has changed after a letter of commitment was provided but before the applicant received SHIP assistance. You noted that a SHIP administrator is obligated to re-verify and re-certify the applicant’s income to determine if the household is still eligible for assistance. What about the letter of commitment in such a case? Does this letter legally require a SHIP jurisdiction to provide assistance even if the applicant’s change in income now places him or her above the level of income eligibility? After all, the applicant was income eligible for SHIP assistance on the date when the letter of commitment was signed and mailed.
Answer:
The Florida Housing Finance Corporation’s legal counsel has concluded that SHIP jurisdictions should deny assistance to applicants discovered to be income ineligible after a Commitment Letter has been issued. Ultimately, it is most important for administrators to ensure that all households receiving SHIP assistance are income eligible. This is stated in section 420.9075 (4)(j) of the SHIP Statute, which notes that “the benefit of assistance provided through the State Housing Initiatives Partnership Program must accrue to eligible persons occupying eligible housing.” Even after you have signed an income certification form and issued an award letter indicating that an applicant is income eligible, you may receive new information indicating that household income has changed. An applicant may inform you that she has just received a raise or lost her job. Alternatively, the applicant’s first mortgage lender may inform you that the applicant has a second job that you did not know about. In all such cases, you must document the new income information with a verification form and re-calculate income eligibility if you learn about a change in household income before the applicant has been assisted with SHIP funds (i.e. before the applicant has signed a rehabilitation contractor’s construction contract, or the applicant has closed on a loan, or before SHIP funds have been provided for some other form of assistance to the household).
This is not to say that a SHIP administrator needs to actively look for changes in an applicant's income once the income certification form is signed. Rather, the administrator must act on any information that is brought to him or her from any source. The Florida Housing Finance Corporation’s legal counsel has reviewed a sample letter of commitment and has concluded that such a letter could not legally force a SHIP jurisdiction to provide assistance to a household that is discovered to be income ineligible before assistance is provided. The legal council does, however, recommend that SHIP administrators add a sentence to the letter to give applicants notice of this aspect of the income qualification process. The letter should note that a household’s annual income will be re-calculated based on changes all the way up until the date when assistance is provided.