The Life Expectancy Set-Aside (LESA) is used for the payment of property taxes, and hazard and flood insurance premiums, and will increase each month at a rate equal to one-twelfth of the sum of the mortgage interest rate (Note Rate), plus the annual mortgage insurance premium rate (currently 0.0125 or 1.25%), from the date the loan is funded. The LESA amount is determined at origination and its balance is adjusted monthly by applying the formula below. The LESA amount itself is not recalculated.
Formula PMLB * (1+d) – TMLD Abbreviations: d – (Note Rate + 0.0125)/12 PMLB – Prior Month LESA Balance TMLD – This Month LESA Distribution
Does the LESA earn or accrue interest, if so, how much?
No it does not. However, the balance increase has the same growth rate as the HECM Line of Credit. Please refer to HUD Mortgagee Letter 2015-09.
Is the LESA considered a mandatory obligation?
Will there be a servicing fee on a file with a LESA?
Depending on the Lender and the type of LESA, a servicing fee may be charged. However, this is determined by each Lender.
Is a LESA and impound account?
The fully funded Life Expectancy Set Aside may act similar to an impound account. However, the calculation to determine the amount required is different.
How does LESA set asides factor in with the growth rate on a LIBOR loan?
The Life Expectancy Set Aside is separate from the borrower’s available line of credit. The growth rate only impacts the available credit line.
Will a fully funded LESA be taken from the first years available funds?
Pursuant to an industry conference call administered by HUD in January, a LESA would be considered a mandatory obligation and therefore a portion, required to satisfy the first year housing expenses, would be taken from the first year’s available funds.
If a borrower had their current lender pay taxes and insurance from an impound account it will be an automatic LESA?
Not necessarily. If the borrower’s credit is excellent and their income is sufficient, then a LESA may not be required.