Reverse Mortgages for Laguna Woods Residents

Many residents of Laguna Woods have heard the rumblings before. In May of 2009 we issued a an article about the upcoming reverse mortgage for co-op projects program that was part of the Home Economic Recovery Act of 2008 which had not been implemented fully as of that time. Here it is more than 10 months later and there may soon be some great news for the residents of Laguna Woods and other cooperative projects across the United States.

HUD recently confirmed that they had redrafted a Mortgagee Letter to issue the final approval for borrowers age 62 and older who wish to obtain a HUD Home Equity Conversion Mortgage (HECM or "Heck-um"). The HECM is the reverse mortgage that so many borrowers age 62 and over have been able to utilize for refinance and purchase transactions enabling them to borrower on their homes without having to make monthly mortgage payments.

The significance of this move is that prior to this time, owners in Laguna Woods and other cooperative projects like it have not been able to obtain the reverse mortgage loans and therefore, had no way to access the equity in their homes under an FHA-insured loan program.

This program guarantees them a place to live for life with no monthly mortgage payments and they have been shut out from being able to use it. Many of these owners had to purchase their homes for cash and during times when retirement accounts and incomes have dwindled while the cost of living has continued to rise, many of these senior homeowners would certainly benefit from being able to utilize the equity they have in their properties.

We have not seen the Mortgagee Letter from HUD yet so we do not know exactly what the guidelines will be. HUD has recently changed rules for condominiums so we can only deduce that the cooperative guidelines will tend to be similar to the new stricter HUD procedures outlined for condominium projects. Which would mean that the owners of Laguna Woods and similar projects would have to get the entire project approved before the first loan could ever be closed, but once the project was approved, then all Laguna Woods residents would have the same benefit.

That would make the last hurdle of the actual approval of projects like Laguna Woods the method by which the project has to be approved. If HUD uses a procedure similar to the condominium projects, then lenders will have to gather all the project documentation for review, and that review may or may not have to be done by a local HUD office.

HUD may allow lenders to approve projects as they do with their DELRAP program for condominiums, but this is not known at this time and it's also not known if lenders will want to take on this responsibility with no background in this area.

The other unknown at this time is lender participation in the program itself. Just because HUD offers a program, that does not mean that all lenders will participate and offer the program or that they will not have "over-lays" to their underwriting guidelines. Overlays exist when HUD puts out their underwriting rules for a loan program and lenders take a look at those rules and determine that they need to be more restrictive in certain areas so they over-lay their own guidelines onto the HUD manual.

Until HUD actually puts their parameters out, the lenders have a chance to review and make risk decisions based on those guidelines, there is no way to know which reverse mortgage lenders will fully accept the program, if at all. Luckily for residents of Laguna Woods, several of the reverse mortgage lenders are anxiously awaiting the release of the cooperative product.

We are all looking forward to being able to serve the needs of this segment of our population. To those of us who have been receiving calls and questions from the residents of Laguna Woods, this news represents the hope of finally being able to deliver good news to anxious borrowers.

Call us at (714) 663-2818 or complete our secure online request