Slide #1 © Copyright 2008 Nan McKay & Associates Annie Stevenson Assets and Asset Income ©...

Slide #1 © Copyright 2008 Nan McKay & Associates

Annie Stevenson

Assets and Asset Income

© Copyright 2008 Nan McKay & Associates


Welcome to Lunch N Learn!

Today’s Topics:• Identifying family assets• Calculating income from assets

Asset market valueNet cash value

• Verification issues• HUD FAQs


Welcome to Lunch N Learn!

Upcoming topics for the occupancy series:• 11/7/08: RFTA & HAP contract (HCV)• 11/21/08: Community service & self-sufficiency

(PH)• 12/5/08: Interviewing & fraud prevention (HCV &

PH)



Why are assets important for rent calculation?• Annual income includes income from assets• Therefore, assets may affect annual income

PHAs must consider any asset that has a dollar value or provides any income


Assets and Asset IncomePHA must identify and verify

• Assets• Market value of asset• Expenses involved to convert asset to

cash • Actual anticipated income from assets


What Assets Include

Savings and checking accounts• PHAs establish policies for determining value

of accounts• May elect to count current balances or average

balances for a given period (2 months, 6 months, etc.)


What Assets Include

Accessible amount of trusts available to family • Distributed income is included in annual

income If a trust is not revocable by, or under the

control of, any family member it will not be considered an asset


What Assets Include

Stocks, bonds, money market funds and other investment accounts• Expenses to convert to cash may involve

a brokers fee• Income may be in the form of interest

or dividends


What Assets Include

Equity in real property, other capital investments• Equity = market value minus all loans

(mortgage) secured by the asset• Cash value = equity minus expenses

to convert to cash


What Assets Include

Expenses to convert real property or other capital investments to cash may include broker fees, sales commissions, settlement costs, and transfer taxes


What Assets Include

Retirement savings accounts such as IRAs and Keoghs• Withdrawal would result in a penalty• The penalty would be considered a cost

in converting to cash


What Assets Include Contributions to company retirement

and pension funds• Before retirement, count only amounts family

can withdraw without retiring or quitting

• After retirement, count regular periodic payments as income


What Assets Include

Assets held in the name of more than one person that allow unrestricted access • Count full value of the asset


What Assets Include Lump sum additions to family assets,

which are retained and verifiable• Inheritances, capital gains, lottery winnings,

insurance payments (including payments under health & accident insurance and worker’s comp), settlements for personal or property losses

• Social security & SSI lump sum payments


What Assets Include “Retained and verifiable” means that the lump

sum must be in a form that can be verified if retained. • If the lump sum was not retained

(spent or given away) it cannot be counted as an asset

• If the lump sum was placed in a savings account or other identifiable asset, it would be counted


What Assets Include Personal property held as investment

• gems • jewelry • coin collections and other collectibles• antique cars

To find market value, may need appraisal• If so, at PHA’s, not family’s, expense


What Assets Include Surrender value of life insurance policies

• Some life insurance will have a surrender value, and some won’t

• The surrender value less penalties, if any, is the cash value

• Some life insurance policies pay dividends, some interest, and some both


Assets Do Not Include

Personal property (not held as investment) –necessary items such as cars, clothing, furniture



Assets not accessible to the family – such as non-revocable trusts• Note that if a non-revocable trust pays a

periodic payment it is treated as an income• On the 50058 the income would come under

Section 7 (income), coded as “N”, other nonwage sources



Interest in Indian trust land Assets which are part of a business – such as

products prepurchased with the intent to sell Equity accounts in HUD homeownership programs

• Value of homes being purchased with assistance under 24 CFR 982 Subpart M, homeownership option Limited to first 10 years after purchase date of home


Assets Do Not Include Family Self-Sufficiency (FSS) escrow

accounts and Individual Savings Accounts (ISAs) held by the PHA for the family• Do not count the income from interest accrued

on these accounts Assets of live-in aides, foster children or foster

adults



PHA must identify and verify• Assets• Market value of asset• Expenses involved to convert asset to cash • Actual anticipated income from assets



The market value is the amount the asset is worth

We must also find the cash value of each asset



Why do we need to know both the market and the cash value of an asset?

Market value is used to determine the actual income from the asset

Cash value is used to determine the total cash value of assets for the HUD 50058


Net Cash Value

Net cash value of assets means:• The value of an asset after

deducting reasonable costs that would be incurred in converting the asset to cash


Net Cash Value Reasonable costs to convert to cash:

• Real propertyBroker fees, closing costs

• Certificate of depositPenalty for early withdrawal

• StocksBroker fees


Net Cash Value

Net cash value of assets • Formula:

Market Value- expenses to convert to cash= net cash value


Net Cash Value

Dave’s CD has a $ 7,000 market value Early withdrawal penalty is $ 400 What is the cash value of this asset?

• Formula: Market Value $ 7,000- expenses - 400= net cash value $ 6,600


Actual Anticipated Income from Assets

Assets can generate income Income from assets is counted in determining

annual income Examples of income from assets

• Interest• Dividends


Actual Anticipated Income from Assets

When an assets earns interest or dividends the formula is:

Market Value X interest/dividend rate = Actual anticipated income


Quiz

Dave’s CD has a $ 7,000 market value Early withdrawal penalty is $ 400 Dave will earn 4% interest on the CD What is the actual anticipated income from

this asset?A. $ 325 B. $ 275 C. $280


Quiz Answer

When an assets earns interest or dividends the formula is:

Market value X interest= Actual anticipated income


Section 6: AssetsMarket Value- Expenses = Cash value

Market Value x interest/div =

CD 7,000 - 400 6,600 280


Income from Assets

When net cash value of all assets is $5000 or less, use the actual anticipated income from assets


Income from Assets

If net cash value of assets exceeds $5,000 must use the greater of:• Actual anticipated income from assets• Imputed income from assets (HUD passbook

rate times net cash value of all assets)


Imputed Asset Income

Imputed asset income is based on the total cash value of all assets and the HUD passbook rate• Formula: Total cash value x HUD passbook rate = Imputed asset income


Imputed Asset Income

Imputed asset income is income that would be received from an asset if it were converted to cash and placed in a savings account earning a HUD-determined passbook rate


Imputed Asset Income Do not apply the passbook rate to each

individual asset with a cash value over $5000 Add the cash values of all assets together,

before applying the HUD passbook rate Do not apply the passbook rate in lieu of actual

asset income if the actual income is zero


HUD Passbook Rate The HUD field office determines the passbook

rate for the PHA locality Based on the average interest rate received on

passbook savings accounts at several banks in the local area

Disregard references to a standard 2% rate given in the PH Occupancy Guidebook


Section 6: Assets

CD 7,000 - 400 6,600 280

6,600 280.015 99280


Calculating on the HUD-50058

John has a savings account with a current balance of $8000. The bank pays 1.35% interest on the account

The HUD passbook rate is 1.55% PHA’s policy is to use the current balance

of savings accounts as the cash value


Answers

1080155

124124

8000 108

8000

John Svgs1


Calculating on the HUD-50058

Mary has a savings account with a current balance of $500. The bank pays 1.25% interest on the account

The HUD passbook rate is 1.05% PHA’s policy is to use the current balance

of savings accounts as the cash value


Answers

60105

06

500 6

500

Mary Svgs1


Calculating Cash Value

Ellen has a house which has a market value of $125,000. She has an outstanding mortgage balance of $50,000. If she were to sell, she would pay a realtor $4,200 commission and closing costs of $800

How do we find the cash value?



Market value Less HUD asset expenses:

• Broker fee • Legal fee • Settlement costs • Penalty for early withdrawal

Less mortgage balance

Cash value

125,000

4,200

800

50,000

70,000



HUD does not specify what “reasonable costs” may be deducted in determining cash value

PHA must establish policies that explain what costs they will deduct


Assets Disposed of For Less Than Fair Market Value

Imputed Assets: Assets disposed of within two years prior to admission or reexamination for less than fair market value

Slide #49 © Copyright 2008 Nan McKay & Associates Assets Disposed of For Less Than Fair Market Value

Cash value of an imputed asset is the difference between the actual cash value of the asset and the amount received

Example: Home market value = $ 225,000Fees incurred 7,000Actual Cash value $218,000

- Amount received 150,000Imputed Cash Value $ 68,000

Slide #50 © Copyright 2008 Nan McKay & Associates Assets Disposed of For Less Than Fair Market Value

In the previous example, had the family “sold” the property for $1.00, a greater cash value would be counted:

Example: Home market value = $ 225,000Fees incurred 7,000Actual Cash value $218,000

- Amount received 1Imputed Cash Value $217,999



Disposal of assets for less than market value is not limited to real property – it includes any personal or business assets disposed of by the family• Example: A mother gives her adult daughter, no

longer living with her, $5000 cash out of her savings account



PHAs can establish through policy a minimum threshold for counting assets disposed of for less than fair market value to avoid having to count small amounts such as gifts and charitable contributions• Threshold of $1,000 would be reasonable



Dispositions are not considered to be for less than fair market value if part of:• divorce or separation• bankruptcy• foreclosure

PHA should develop applicant/tenant certification form for verification purposes


Calculation of Imputed Assets Denise Smith is disabled and could no longer

maintain her home. Two months ago she “sold” his house to her son for $25,000, which she put in a savings account earning 1.25% interest.

The son assumed the $22,000 mortgage and paid all closing costs. The house is appraised at $78,000. HUD passbook rate is 1.5%


Calculation of Imputed Assets

Market value

Less HUD asset expenses: • Less mortgage balance -

• Less amount received -

Imputed asset value

78,000

22,000

25,000

31,000


Calculation of Imputed Assets

313015

840840

78,000 -47,000 31,000 0

56,000

Denise 1 prop (disp)

Denise 1 svg 25,000 313


Calculating Asset Cash Value and Asset Income on HUD-50058

Carly has a savings account valued at $900 with anticipated interest income of $11. She received an inheritance of $40,000. She used $20,000 of it to buy a car. The remaining $20,000 was put into stocks. If she were to sell the stock the broker fee would be $1,500. The stock is expected to earn a 1.75% dividend this year. The HUD passbook rate is 1.15%.


Calculation on HUD-50058

Carly 1 Savings

19,4000115223361

Carly 1 Stocks 18,500 350

361

900 1120,000 - 1500


Income from a Rental Property

It is possible for an assisted family to own real property and rent it out

Income from such a rental would be reported as asset income on the 50058 (unless approached as a business)

Only net rental income is reported


Calculating Rental Income on 50058

Harold owns a home and rents it out. Market value is $125,000 Cash value is $70,000 Rental income is $675 per month Anticipates expenses (as per next slide) HUD Passbook rate is 1.4%


Income from a Rental PropertyRent $675/mo = $8100Expenses: Maintenance $10/wk = 520 Insurance $40/mo = 480 Taxes $175/half = 350 Interest on Mortgage $325/mo = 3900 Utilities $50/quarter = 200TOTAL EXPENSES 5450Net Rental Income $2650


Income from a Rental Property

2,650

70,000 2,650014

9802,650

Harold 1 Rental 70,000


Verification of Assets

Generally follow the same guidelines as for verifying income

However, there are exceptions to third party verification requirements that are unique to assets and expenses…


Exceptions to Third Party

If it is not cost-effective or reasonable to obtain third party verification

If the item to be verified is an insignificant amount that would have minimal impact on TTP AND the PHA is able to verify through original documents provided by family


Exceptions to Third Party

NOTE: This does NOT mean the PHA can exclude small assets from the calculation of annual income. It only means that it is not necessary to use third party verification in some cases.


Documenting the Absence of Third-Party Verification

When third-party verification is not attempted, a family’s file should contain documentation of the reasoning used to justify the decision.

All file notations made by staff should be:• Complete Limited to facts• Dated Signed or initialed


Third-Party Verification Not Cost-Effective

Eugene reports a savings account with a balance of $1,000 earning 1.25% interest. Bank statements were provided to PHA by Eugene. Bank charges $10 fee for third-party verification. Staff time for processing a third-party verification is estimated at $9.

Is this cost effective?


Third-Party Verification Not Cost-Effective

Reasoning: 3rd party costs Document review costs

• $10 bank fee$0• $9 admin time

Interest: $1000 x .0125 = $12.50 Answer: No – but document reasoning! And - PHA must verify with review of family-supplied

documents


Other Verification Concerns

Sometimes there are costs involved with the verification of assets and asset income• Bank charges for third party or copies of

documents• Appraisal fees

The PHA may never pass the costs of verifying asset information on to the family


HUD FAQs

Three websites for FAQs• http://www.hud.gov/offices/pih/phr/about/ao_faq.cf

m (Admission & Occupancy)

• http://www.hud.gov/offices/pih/programs/ph/rhiip/faq_gird.cfm (RHIIP)

• http://www.hud.gov/offices/pih/programs/ph/rhiip/faq_ris.cfm (Rental Integrity Summit)

http://www.hud.gov/offices/pih/phr/about/ao_faq.cfm

http://www.hud.gov/offices/pih/phr/about/ao_faq.cfm

http://www.hud.gov/offices/pih/programs/ph/rhiip/faq_gird.cfm

http://www.hud.gov/offices/pih/programs/ph/rhiip/faq_gird.cfm

http://www.hud.gov/offices/pih/programs/ph/rhiip/faq_ris.cfm

http://www.hud.gov/offices/pih/programs/ph/rhiip/faq_ris.cfm


Sample FAQ #1

Question: If a tenant puts $10,000 in an IRA, and 10 years later the IRA is worth $15,000 and the tenant begins withdrawing monthly amounts from the IRA, are the amounts withdrawn considered income?


Sample FAQ #1

Answer: Withdrawals from an investment that are received as periodic payments are counted as income, unless the family can document that amounts withdrawn are reimbursement of amounts invested• Withdrawals count as income after amount

invested has been paid out


Sample FAQ #2

Question: If 2 sisters are on the program, living separately, and have their names on each other’s savings accounts, what balances are counted as assets for each sister?


Sample FAQ #2

Answer: If both sisters have access to the balance of both accounts, count both accounts for each sister• In this instance, the guidance in Handbook

4350.3 is not applicable


Sample FAQ #2

Example:• Account 1: $5000• Account 2: $3000

Count $8000 for EACH sister


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