If any family member indicates on the Household, Income, Asset, and Expense Declaration (MSHDA 1890) that they have assets (including savings, checking, CD’s, IRA accounts, life insurance policies, etc.) obtain third party verification. Verify and include all assets owned by all family members, including those owned by family members under the age of 18.
Checking ‘No’ and signing the Checklist is sufficient verification that an adult member does not have assets and further verification is not required.
The latest financial institution statements (i.e. checking accounts or other statements only provided on a quarterly basis) can be accepted as long as a six-month period is covered.
If the total cash value of the family assets are:
Less than or equal to $5,000, use the actual income earned from assets (i.e., interest and dividends); or
Greater than $5,000, use the greater of:
Imputed Income is HUD’s approved passbook rate multiplied by the total cash value of assets
Note: Elite automatically totals all household assets and adds HUD’s approved passbook rate interest if the total assets are greater than $5,000. This imputed asset income appears in the income totals of the printed worksheet and may affect the family’s TTP.
Include withdrawal of cash or assets from an investment as income, except when the withdrawal is reimbursement for cash or assets invested by the family.
When valuing assets, deduct the expenses involved in converting assets to cash, such as:
a. Assets Disposed of for Less Than Fair Market Value
If an asset worth more than $5,000 is sold for less than fair market value (FMV), include the difference between fair market value and the actual payment received as an imputed asset. Applies to assets disposed of during the two years preceding admittance or re-examination.
Does not apply to assets disposed of as a result of a divorce or separation, foreclosure, or bankruptcy (vehicles, furniture, clothing, etc.).
If the Cash Value is less than $5,000, the asset automatically falls below MSHDA’s minimum threshold and further verification is not required. Document using the Supplemental Information form (MSHDA 77).
Imputed assets over $5,000 are subject to the minimum HUD approved passbook rate for 2 years from the date of disposal.
Tickler for 2 years after the date of disposal of the asset. At the end of the 2 years, an Interim re-examination must be processed to remove the imputed income.
If a balance remains on the asset (mortgage) which requires payoff, subtract the balance as an expense to determine cash value.
Acceptable verifications of the disposition of assets for less than FMV include:
Use State Equalized Value (SEV) times 2 (two) to determine FMV or appraisal.
Example of Calculating an Imputed Asset:
Applicant sold home to daughter on 3/1/03 for $5,000 and paid broker’s fees/settlement costs of $1,700. The FMV is $19,500, and there were no secured loans.
Date Disposed of: 3/1/02
Fair Market Value $ 19,500
Less Expenses:
Broker Fee (7%) $ 1,365
Legal Fee 0
Settlement Costs $ 335
Less Mortgage Balance 0
Less Total Expenses 1,700 $ (1,700)
Actual Payment Received $ (5,000)
Imputed Asset (cash value) * $ 12,800
The amount to be included as family assets is $12,800. It is subject to a minimum HUD approved passbook rate of interest until 03/01/05, or two years from date of disposal. If this tenant’s re-examination is 6/1/03, the asset is counted until 2/28/05 (2 years from date of disposal), then asset must be removed.
b. Bank Accounts:
CD amount – penalty = Cash Value
CD’s Cash Value X interest rate = Actual Income
c. Franchises:
A franchise that an individual owns (or is making payments on) is an asset.
To determine the value of the franchise:
d. IRA, 401K, KEOGH, and Similar Retirement Accounts:
The value of each retirement plan equals the amount of money the person can currently withdraw from the plan minus penalties for early withdrawal. Deduct any early withdrawal penalty, but not the amount of any taxes due.
Do not consider funds available if the person must quit or retire from their job to withdraw any money.
e. Life Insurance (Cash Value Of Whole Life Insurance)
Consider a life insurance policy as an asset if it generates a ‘cash surrender value’ (CSV). CSV identifies the payment the policy owner receives by canceling the policy before it matures or before the insured dies. The value may be entitled ‘benefits/ cash surrender value’ or Cash Value of the policy.
Include the CSV as an asset, minus any penalties or fees for early withdrawal.
Do not include Term Insurance as an asset if it does not generate a CSV.
Require a letter or statement from the life insurance company/agent to verify the policy, current cash value, and any penalties or fees for termination or early withdrawal.
f. Lump Sum Additions
Lump Sum payments are an asset. Interest accrued on lump sums is income. If the payment is received on a recurring basis, it is not a lump sum and is therefore considered income.
Examples of lump sums that are considered assets:
Deduct legal fees when an attorney assists in the recovery of lump sum compensation.
g. Personal Property Held as an Investment
Personal property held as an investment, such as gems, jewelry, coin or stamp collections, antique cars, etc, are considered assets.
Require a letter/documentation from a reliable source regarding the current cash value of the investment.
h. Real Estate, Property Ownership, Land Contracts
Acceptable verifications of ownership include (but are not limited to):
The Cash Value of the property is the current market value less the indebtedness (outstanding loans) and any reasonable costs (i.e. broker fees, closing costs, etc.) necessary to sell the asset.
Use the State Equalized Value (SEV) vs. ‘assessed value’ of property listed on the tax bill. The SEV multiplied by two equals the value of the property.
If the property was purchased within the last 12 months, use the actual purchase price as documented by the family.
Verify the indebtedness and fees necessary to sell the asset (i.e. amortization schedule).
Example of how to calculate cash value of property:
SEV = $50,000
SEV x 2 (equals actual market value of property) $ 100,000
Less: HUD Asset Expenses:
Broker Fee (7%) ($ 7,000)
Legal Fee ($ 0)
Settlement Costs ($ 1,000)
Mortgage Balance* ($ 20,000)
Total Asset Expense Deduction 28,000 ($ 28,000)
Equals: Cash Value of Asset $ 72,000
*Mortgage Balance as of effective date of re-examination
Include the percentage actually owned by the household as an asset.
Obtain one of the documents identified as an acceptable verification of ownership and verify percentage of ownership using one of the following methods:
The sale of property on a land contract is considered an asset (i.e., principal payments) since the interest paid by the buyer on the sale is considered income to the seller. The balance of the payment (i.e. principal, taxes, insurance) is considered liquidation of an asset and is not counted as income.
If no changes have occurred, re-verification on an annual basis is not required.
Acceptable verifications of interest paid (income of seller) on land contract sale:
The value of the asset includes the current principal balance less any outstanding indebtedness owed on the property. Acceptable verification of a land contract sale:
The net income received from rental property, adjusted for changes expected during the next 12 months, is included as Asset income. All relevant expenses (utilities, taxes, maintenance, insurance, principal and interest payments, etc.) paid by the family must be verified and deducted from gross rental income.
The following documentations are acceptable to verify rent and expenses:
Utilities
Insurance
Maintenance/Other Expenses
Taxes
Principal and interest payments
Value of the Asset – (See example at beginning of this section to determine Cash Value of Property.)
Example of Actual Income from Rental Property:
Gross Rent from Rental Property (annual) $ 7,200
Utilities $ 1,000
Insurance $ 500
Taxes $ 2,000
Maintenance/Other Expenses $ 300
Less: Total Expense Deduction 3,800 ($3,800)
Equals: Actual Income from Rental Property $3,400
Equity equals the estimated current market value of the asset less the unpaid balance on all loans secured by the assets and all reasonable costs (such as brokerage fees) that would be incurred in selling the asset.
i. Retirement/Pension Funds
Include any benefits received through periodic payments, including Veterans Affairs (VA) and GI payments.
Before retirement - Include only those amounts the family can withdraw without retiring or terminating employment.
After retirement - Include as an asset any monies the applicant/participant elects to receive as a lump sum after retirement or termination of employment.
j. Stocks, Bonds, Mutual Funds, etc.:
The cash value equals the amount the asset currently sells for, less brokerage charges and any fees/penalties if the asset was sold immediately.
Document stock ownership (i.e. current statement).
Determine the current value of the stock(s) by checking a newspaper or other source, such as the Internet. Record the source of the stock values on a MSHDA 77.
Determine brokerage charges by contacting a broker or obtain a statement from the broker.
Determine the cash value by using ending balances on statements; multiply the number of stocks by the current value of the stocks minus brokerage charges/penalties if stock was sold immediately.
Determine the actual income by using ending balances on statements; multiply the number of shares by the current dividend rate.
Note: If dividends are reinvested, actual income equals zero.
The cash value equals the amount the asset currently sells for, less brokerage charges and any fees/penalties if the asset was sold immediately.
Document mutual fund balance (i.e. current original quarterly/monthly statement).
Determine the Cash Value using ending balances on statements. Determine the Share Balance by multiplying the number of shares by the current value of the share (minus any penalty/fees if funds were sold immediately).
Determine Actual Income by using ending balances on statements; multiply the number of shares by the current dividend rate.
Note: If dividends are reinvested, actual income will equal zero.
The U.S. Treasury Department issues Savings Bonds. They are registered (owned exclusively by the person(s) named on them) and non-marketable (may not be sold).
I-Bonds are sold at face value.
Series EE Savings Bonds are sold at half the face value (mature after 30 years). Interest is earned (accrued) monthly; interest is compounded semi-annually. Earnings are paid out when the bonds are redeemed.
Series HH Savings Bonds earn and payout interest semiannually. The face value of Series HH Bonds is paid when redeemed.
The money placed in savings bonds is available after six months; if redeemed earlier than five years from the issue date, the penalty is equal to three months of earned interest.
Actual income always equals zero. The Cash Value of Bonds is added to household assets.
The Cash Value (or current value) of a U.S. Savings Bond equals the amount the owner could get if the bond were cashed today. If the bond has not reached maturity, Cash Value is always less than the face value on the bond.
U.S. Treasury has a website at www.savingsbonds.gov where detailed information on U.S. Savings bonds and their current value (Savings Bond Calculator) is available.
The current value of a bond may also be determined by contacting a Financial Institution and requesting the day value of the bond. Document the contact and the current value of the bond on a MSHDA 77.
If a security was not paid in full at the time of purchase (bought on margin), the securities firm made a loan to the buyer. Deduct the balance owed from the current price if brokerage account statement verifies the margin balance.
These funds are similar to a passbook savings account, except the interest rate on the money market funds usually exceeds the passbook rate. Include the Cash Value of the money market fund as an asset.
k. Trusts – Include funds received from the trust as income.
The cash value of trusts that are available to, and may be withdrawn by, the household. Include funds received from the trust as income. Do not include irrevocable trusts.
(December 1, 2003)