Slide #1
Assets and Asset Income
Annie Stevenson
Slide #2
Welcome to Lunch N Learn!
 Today’s Topics:
• Calculating income from assets
 Asset market value
 Net cash value
• Verification issues
• HUD FAQs
Slide #3
Welcome to Lunch N Learn!
 Upcoming topics for the occupancy series:
•
•
•
•
4/4/08: Adjusted Income
5/2/08: Verification Issues
6/12/08: PH Rent Calculation
6/13/08: HCV Rent Calculation
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for all Lunch ‘n’ Learn updates
Slide #4
Assets and Asset Income
Today’s topics
• Market value and cash value
• Calculation of asset income
• Inclusions and exclusions
• Verification
Slide #5
Assets and Asset Income
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
Slide #6
Assets and Asset Income
PHA must identify and verify
• Assets
• Market value of asset
• Expenses involved to convert asset to
cash
• Actual anticipated income from assets
Slide #7
Assets and Asset Income
An asset is an item of value that can be
converted to cash
• More on types of assets later
The market value is the amount the asset is
worth
We must also find the cash value of each asset
Slide #8
Assets and Asset Income
 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 all the family’s assets in the HUD 50058
calculations
Slide #9
Asset Income Calculations on 50058
 Include in annual income
• If the net cash value of all assets is $5,000 or
less, the actual income from assets
• If the net cash value of all assets exceeds
$5,000, the greater of:
 Actual income from all assets
 Imputed income from all assets
Slide #10
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
 Real property: broker fees, closing costs
 Certificate of deposit: penalty for early withdrawal
 Stocks: broker fees
 Savings accounts
Slide #11
Net Cash Value
 Net cash value of assets
• Formula:
Market value
- Expenses to convert to cash
= Net cash value
Slide #12
Net Cash Value
 Fred’s CD has a $ 7,000 market value
 Early withdrawal penalty is $ 400
 What is the cash value of this asset?
• Formula:
Market value
- Expenses
=Net cash value
$ 7,000
- 400
$ 6,600
Slide #13
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
Slide #14
Actual Anticipated Income from
Assets
 When an asset earns interest or dividends
the formula is:
Market value
X Interest/dividend rate
= Actual anticipated income
Slide #15
Quiz
 Fred’s CD has a $ 7,000 market value
 Early withdrawal penalty is $ 400
 Fred will earn 4% interest on the CD
 The HUD passbook rate is 1.5%
 What is the actual anticipated income from
this asset?
A. $105 B. $264 C. $99 D. $280
Slide #16
Quiz Answer
 When an asset earns interest or dividends
the formula is:
$ 7,000 Market value
X 4%
Actual interest rate at bank
= $ 280 Actual anticipated income
Slide #17
Section 6: Assets
Market Value
- Expenses
CD
7,000 - 400
= Cash value
6,600
Market Value x
interest/div =
280
Slide #18
Review: Income from Assets
 When net cash value of all assets is $5,000 or less,
use the actual anticipated 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)
Slide #19
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
Slide #20
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.
Slide #21
Imputed Asset Income
 Do not apply the passbook rate to each
individual asset with a cash value over $5000
(unless the family only has that one asset)
• 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
Slide #22
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
Slide #23
Section 6: Assets
CD
7,000 - 400
6,600
6,600
280
280
.015
99
280
Slide #24
Calculating on the HUD-50058
 John has a savings account with a current
balance of $8000. He will earn 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
Slide #25
Answers
John
1
Svgs
8000
108
8000
108
0155
124
124
Slide #26
Calculating on the HUD-50058
 Mary has a savings account with a current
balance of $500. She will earn 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
Slide #27
Answers
Mary
1
Svgs
500
6
500
6
0105
0
6
Slide #28
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?
Slide #29
Calculating 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
Slide #30
Calculating Cash Value
 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
Slide #31
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.)
Slide #32
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
Slide #33
What Assets Include

Stock, 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
Slide #34
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
Slide #35
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
Slide #36
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
Slide #37
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
Slide #38
What Assets Include
 Assets held in the name of more than one
person that allow unrestricted access
• Count full value of the asset
Slide #39
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
Slide #40
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
Slide #41
What Assets Include
 Do not count lump sums for deferred periodic
payments as assets (except SS & SSI)
• Such lump sums are counted as income
• Such SS and SSI lump sums are an exception and
will be treated as an asset, if retained and verifiable
 If not retained and verifiable they are neither assets
nor income
Slide #42
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
Slide #43
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
Slide #44
Assets Disposed of For Less
Than Fair Market Value
 Imputed Assets: Assets disposed of
within two years prior to examination
or reexamination for less than fair
market value
Slide #45
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 =
Fees incurred
Actual Cash value
- Amount received
Imputed Cash Value
$ 225,000
7,000
$218,000
150,000
$ 68,000
Slide #46
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 =
Fees incurred
Actual Cash value
- Amount received
Imputed Cash Value
$ 225,000
7,000
$218,000
1
$217,999
Slide #47
Assets Disposed of For Less
Than Fair Market Value
 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
Slide #48
Assets Disposed of For Less
Than Fair Market Value
 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
Slide #49
Assets Disposed of For Less
Than Fair Market Value
 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
Slide #50
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%
Slide #51
Calculation of Imputed Assets
Market value
78,000
Less HUD asset expenses:
• Less mortgage balance
• Less amount received
Imputed asset value
- 22,000
- 25,000
31,000
Slide #52
Calculation of Imputed Assets
Denise
1
Denise
1
prop
(disp)
svg
78,000 -47,000
31,000
0
25,000
313
56,000
313
015
840
840
Slide #53
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%.
Slide #54
Calculation on HUD-50058
Carly
Carly
1 Savings
1 Stocks
20,000 - 1500
900
18,500
11
350
19,400
361
0115
223
361
Slide #55
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
Slide #56
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%
Slide #57
Income from a Rental Property
Rent
$675/mo =
Expenses:
Maintenance
$10/wk =
Insurance
$40/mo =
Taxes
$175/half =
Interest on Mortgage $325/mo =
Utilities
$50/quarter =
TOTAL EXPENSES
Net Rental Income
$8100
520
480
350
3900
200
5450
$2650
Slide #58
Income from a Rental Property
Harold
1
Rental
70,000
2,650
70,000
2,650
014
980
2,650
Slide #59
Assets Do Not Include
 Personal property (not held as investment) –
necessary items such as cars, clothing,
furniture
Slide #60
Assets Do Not Include
 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
Slide #61
Assets Do Not Include
 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
Slide #62
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
Slide #63
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…
Slide #64
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
Slide #65
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.
Slide #66
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
• Dated
Limited to facts
Signed or initialed
Slide #67
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?
Slide #68
Third-Party Verification
Not Cost-Effective
Reasoning:
 3rd party costs Document review costs
• $10 bank fee
• $9 admin time
$0
 Interest: $1000 x .0125 = $12.50
 Answer: No – but document reasoning!
 And - PHA must verify with review of family-supplied
documents
Slide #69
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
Slide #70
HUD FAQs
 Three websites for FAQs
• http://www.hud.gov/offices/pih/phr/about/ao_faq
.cfm (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)
Slide #71
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?
Slide #72
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
Slide #73
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?
Slide #74
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
Slide #75
Sample FAQ #2
 Example:
• Account 1: $5000
• Account 2: $3000
 Count $8000 for EACH sister
Slide #76
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