Reverse Mortgages for Home Purchase, Any Word
Michael Branson (CEO ARMC) 2/12/09 5:54pm
We keep getting calls from would be borrowers, their families and from other interested parties about the home purchase reverse mortgage program asking if we know anything yet. We have more information than we did last December, just not all the information we really need and not all the information everyone was hoping to hear.
When HUD first announced how they intended to administer the program in their Mortgagee Letter 2008-33, HUD announced that they would consider the eligibility based on the appraised value, and cited three examples of how the program would work. Example #3 at the top of page 3 clearly shows that if a borrower is able to find a property that appraises for more than the purchase price, then the down payment requirement is less than if the property appraises for less than or equal to the sales price (examples 1 and 2).
This set off a flurry of hope with seniors who wanted to purchase using this program and felt they could search high and low for that special property which, based on the seller’s circumstances, they would be able to buy for less than prevailing market value. This would enable them to come in with much less down. But then people started to ask, “What happens if the property appraises for so much more that that borrowers eligibility under the reverse mortgage actually equals or exceeds the sales price?! Does that mean that they do not have to come in with any down payment or in some cases, do they get money back???
HUD indicated in early December that they were going to issue official clarifications about the program. There were to be conference calls explaining HUD’s position on all the questions. The program became effective on January 1, 2009, conference calls have come and gone and still the only information that can be found on HUD’s website is a list of FAQ’s that is not on HUD letterhead. These frequently asked questions do not address the appraised value or sales price dilemma created by Mortgagee Letter 2008-33 and in fact, tend to lay out a program which is more stringent than regular HUD forward mortgages. For example, family members, friends with a long time close relations or a non-profit organization can give a gift for the down payment which can be as little as 3 ½% on a forward mortgage.
The Home Equity Conversion (HECM or “Heck-um”) reverse mortgage has a much greater starting equity position, but HUD will not allow even family members to gift their parents, grandparents, etc the funds to buy with a reverse mortgage according to item #12 of the FAQ’s. Another area in which HUD has taken even a stricter stance than in forward mortgages is in the area of seller concessions. Even though the costs for a reverse mortgage can be quite high, HUD will not allow any seller concessions including the payment of non-recurring costs according to item 15 of the HUD list, even though they routinely do this for forward mortgages.
No one wants to see HUD begin a program which is subject to abuse and fraud, but the ability to use the appraised value would help many more seniors get into homes. In the conversations we have with folks who have lost their current homes to bad economic times and bad mortgage loans they did not understand, the reverse purchase program as outlined in Mortgagee Letter 2008-33 would give them an opportunity to again become contributing homeowners, with a pride of ownership many of the houses and neighborhoods need.
The FAQ’s and Mortgagee Letter listed above contain provisions to defeat property flipping and a method to report abuses. HUD should also add additional safeguards if there is still concern. But to make the program itself even more restrictive than the forward mortgage program prohibits many seniors from using its benefits. There is currently only one lender offering the program due to the uncertainty of the final parameters and even then, it is offering the most conservative guidelines possible to be certain the product will be insured by HUD.
It’s not clear now if the current delay is a deliberate one intended to wait and see what happens with the Stimulus Bill now in Congress. The House version called for a higher limit to the HECM program so it may just be that HUD is waiting now to see what else may come. However, since the program became effective on January 1, 2009, senior borrowers who have been waiting patiently just want to know what the final parameters will be. Seems that if HUD was just going to go with the forward mortgage formula of determining eligibility on the “sales price or appraised value, whichever is less”, that would have been an easy clarification to make and could have been done last December.
We can only hope that HUD is studying the possible effects of sticking to the appraised value as was stated in the 2008-33 Mortgagee Letter and that there is still hope for the method by which HUD will utilize only the appraised value, even if the sales price is less. Only time and an official HUD notification will tell!
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