I spoke with Judy Nash Ellis of the Atlanta Home Ownership Center (HOC) just minutes ago.  Ms. Ellis confirmed that HUD has now posted guidelines on their website to supersede Mortgagee Letter 2008-33.  Those guidelines posted as “HECM Reverse Mortgage for Purchase Frequently Asked Questions” can be found at:

http://www.hud.gov/offices/hsg/sfh/hecm/faqs_hecm.cfm. 

The one that everyone has been asking with regard to how the benefit amount will be calculated is stated as follows: “For HECM purchase transactions only, The maximum claim amount will be the lesser of the appraised value, sales price or FHA mortgage limit for a one family residence. The principal limit is determined by multiplying the maximum claim amount by the principal limit factor corresponding to the age of the youngest mortgagor and the expected interest rate. This guidance replaces the policy guidance found in Mortgagee Letter 2008-33.”

What this tells seniors in a nutshell is that if they are able to find a home for sale at a sales price less than the appraised value, then the benefit amount will be calculated from the sales price and not the appraised value as previously reported (assuming that both are at or below the FHA mortgage limit).  There will be no opportunity under this calculation for seniors to purchase using the reverse mortgage with reduced down payments if the properties appraise for more than the sales price.

To really illustrate the level of confusion over this issue, we had borrowers contact their Representative, Jeff Miller, to request Congressional assistance when it appeared that HUD was not going to operate as outlined in Mortgagee Letter 2008-33.  Representative Miller contacted HUD on the borrower’s behalf and received a letter from the Jacksonville HUD Office Field Office Director, J. Nicholas Shelley stating that the calculation method as stated in Mortgagee Letter 2008-33 was accurate. 

< View Congress letter to HUD >

< View Response from HUD >

When I spoke with Mathew Stewart in the Jacksonville office yesterday, he indicated that they felt they needed to get some additional input from the Atlanta HOC Office.  It was Judy Nash Ellis who took me to the above link which explains the new guidance, even as I was quoting to her another place on the same HUD website which was still active that did not contain this verbiage and tended to support the 2008-33 Mortgagee Letter.

The bottom line is this: HUD has been moving swiftly to enact many provisions of the 2008 Housing and Economic Recovery Act (HR 3221) and this is one of those times when, unfortunately a few things fell between the cracks. 

It would have been a HUGE win for seniors, especially those who have lost their homes over the past year to bad mortgage programs and bad economic times, to have been able to use the appraised value or the applicable FHA mortgage limit, but this is not the way HUD has implemented the program. 

It may never be possible to utilize the appraised value and not consider the sales price, but who knows what might happen if enough seniors contact their representatives to get them to become involved and request that HUD go back to the calculation as outlined in the 2008-33 Mortgagee Letter? ...

Series of Related Articles

02-12-2009, Reverse Mortgages for Home Purchase, Any Word?

01-09-2009, Purchase Reverse Mortgage Update

11-13-2008, Purchase Reverse Mortgage - Down Payment?

10-29-2008, Purchase Reverse Mortgages - Almost Here!

Michael G. Branson (CEO All Reverse Mortgage Company) is a Mortgage Broker who has over 31 years of mortgage banking experience. Toll Free (888) 801-2762 ext 704

Please also download our Free Guide to Purchase Reverse Mortgages Here