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Federal Prohibition of Marijuana Restricts Lenders Ability to Issue Loans to Borrowers Employed in Marijuana Industry

A Rhode Island mortgage lender recently rescinded approval of a loan application because the prospective borrower reported income from his employment in Rhode Island's medical marijuana industry. The lender was aware of the borrower's source of income at the time it issued a pre-approval letter, but ultimately denied the loan because the Federal Housing Authority (FHA) will not purchase or invest in a loan where the borrower is employed by, or receives compensation related to, the marijuana industry. FHA's Single Family Housing Policy Handbook provides that a lender may only consider a borrower's income if it is legally derived. Since marijuana remains illegal under federal law, any income derived from the cannabis industry cannot be considered as effective income for purposes of underwriting a loan. The denial of the loan came days after the United States Attorney General rescinded the Cole Memorandum, an internal justice department policy enacted during the Obama administration, which directed federal prosecutors to limit enforcement of federal marijuana laws in states that legalized and regulated cannabis. More ›

A New HUD Rule for Reverse Mortgages, with Additional Rule Changes Proposed in Congress

This past month, Washington was busy with rule changes and proposed legislation that underscores the ongoing debate over the origination and foreclosure of reverse mortgages. First, the U.S. Department of Housing and Urban Development reduced the maximum amount a reverse mortgage applicant can borrow. Previously, the maximum amount was exclusively tied to the property's value (at either 60% or 70%). Under the new rule, HUD has tied that maximum amount to three criteria: applicant's age, loan rates and the value of the property. While it is unclear how these new criteria will impact the maximum amount, the Wall Street Journal reports that Lending Tree's chief sales officer anticipates that a typical applicant will now be able to borrow 58% on the property's value, down from an average of 64%. Second, HUD increased the upfront insurance premium charged on any reverse mortgage from between .5%-2.5% percent and depending on the amount borrowed to a flat 2%. Given the reduction in amount that an applicant can borrow and an increase in upfront insurance payments, HUD's new rules appear aimed at benefiting lenders. The new rules went into effect on October 2, 2017. More ›

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