What Happened to HUD’s Plan to Allow Seniors to Buy
New Homes with Reverse Mortgage?
Although it was set to kick-off on January 1, it is
mired in confusion, says expert
Feb. 17, 2009 – One of the bright spots about 2009
for senior citizens was to be a new provision in the reverse mortgage
regulations at Housing and Urban Development that would allow seniors to
use this unique program to actually buy a new home and not have
payments. Alas, something seems to have gone wrong, according to a reverse
mortgage expert at All Reverse Mortgage Company.
Maybe it has become tangled in the paperwork during
the change in presidential administrations or swamped by the focus on
approving a stimulus package to boost the sinking U.S. economy. Anyway,
this program, which appeared to show great promise in helping stimulate
the housing market does not seem to be working.
Following is an explanation by Michael Branson,
Chief Executive Officer of All Reverse Mortgage Company, that he has
offered to clients and made available to SeniorJournal.com.
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.
Purchase Reverse Mortgage Program allows seniors to
purchase a new home, never make a mortgage payment for as long as they
live in the home, may require sizable down payment
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!
If you or a family member have a question for us
please call
Editor's Note: All Reverse Mortgage
Company is an
advertising client of SeniorJournal.com, but submitted this article as a
news department contribution.
Feb. 17, 2009 – One of the bright spots about 2009
for senior citizens was to be a new provision in the reverse mortgage
regulations at Housing and Urban Development that would allow seniors to
use this unique program to actually buy a new home and not have
payments. Alas, something seems to have gone wrong, according to a reverse
mortgage expert at All Reverse Mortgage Company.