Reverse Mortgage Rules for Seniors Living in
Condominiums Changed by HUD
Senior condominium owners are affected by
this new procedure; author worried that senior borrowers may wait too
long
By Michael Branson, CEO,
All Reverse Mortgage
Company
Jan. 29, 2010 - I still get a call about once a
week with borrowers asking when they will be able to do a reverse
mortgage on their unit in a cooperative project. After all,
co-op's were included in the list of acceptable properties when the
Home Economic Recovery Act (HERA) passed in 2008 but the programs to
include them just have not been implemented by HUD / FHA as of this
date.
Unfortunately, we recently received news on HUD's
plans for condominiums which did not come as welcome news to me and will
probably keep HUD more that busy enough to prevent them from rolling out
co-ops.
Senior borrowers who currently live in condominium
projects or who want to purchase in a condominium project had the
ability to either purchase in a project that was already
HUD approved, or the lender could do what was known as a "Spot
Approval". The spot approval allowed the lender to review a few pieces
of information and as long as the project met HUD's specifications and
guidelines on those issues, the property was eligible.
HUD has eliminated the spot approvals effective
February 1, 2010 and from that time forward only borrowers located in
HUD fully approved projects are eligible for FHA-insured
loans...including reverse mortgages.
Now let's discuss what that really means.
If a borrower has not received a Case Number prior
to February 1, 2010 for a loan on a property located in a non-approved
HUD condominium project, then the lender will not even be able to
request the case number but rather will need to gather all the
condominium documentation (CC&R's, By-Laws, Articles of Incorporation,
Current Budget, Verification of Adequate Reserves, etc) including a
current Homeowner's Association Certification indicating things like
owner occupancy ratios, percentage of owners delinquent on HOA dues,
pending litigation, etc. Think of a package roughly the size of the
stack of papers you have seen everyone in Congress waving around when
talking about the stimulus legislation. Then this information must be
sent to HUD for approval.
The timeframe quoted by HUD for approvals?
Minimum of 8 weeks from when they receive
everything (and if there is anything missing or wrong - it's going to be
lot longer) but when all of these packages start hitting their doorstep,
the normal turn times are going to start stretching out.
Lenders can also approve projects themselves but
they have tremendous liability due to the fact that not only are they
liable for the loans that they originate if they make errors in the
project approval, but also once the project approval is input into the
HUD system, all other lenders can originate out of that project as well.
So the lender has just accepted the liability for these other
originators as well!
After several calls to lenders, we have been unable
to find more than one lender who is willing to perform this function in
their shop for regular forward loans and have yet to find a reverse
mortgage lender who intends to approve projects. After all, what lender
is willing to accept the liability for every other originator?! This
will tack on a minimum of 10 weeks to the processing time for all loans
located in unapproved condominium projects before a case number can even
be obtained.
That is especially important since HUD always
distinguishes program changes, etc. based on the date the case number
was obtained.
In October of 2009, HUD
lowered the eligibility levels to borrowers on the reverse mortgage
program by roughly 10%. All borrowers who had a case number already
assigned were not affected by the change. If the condominium guidelines
were also in effect, then there would have been many borrowers who would
not have been able to get a case number until their project was approved
and would have had their eligibility lowered, possibly lowering them to
a point where they no longer received adequate funds to pay off existing
mortgages.
HUD also has a designation known as a "Site Condo"
which is a condominium by legal description but is a single family
property by all other view points (may be on its own lot, very minimal
common amenities, etc., usually done by builders to get around some
local ordinance but if you drove up and looked at it, you would swear it
was a single family residence).
HUD does not require that a site condo has approval
prior to issuing a case number but I warn originators now not to think
about being tempted to obtain a case number using the site condo
designation thinking they will switch it to a regular condo later. Once
it has the site condo designation, it cannot be changed.
Further muddying the waters is the fact that HUD
currently plans to review all the projects that are now on the approved
list in January of 2011. So even if your project is currently on the HUD
approved list, if HUD goes ahead with their current plans, in January of
next year, it will need to be reapproved!
HUD's rationale is that some of these projects may
have been approved a long while back, some may have current occupancy or
other issues and that their risk may have changed, that it is time to
look at them again. The real question is will the magnitude of the
project, once fully underway, cause HUD to alter their decision when
they find that no lenders are willing to accept the risk and all
projects are being sent to HUD for approval.
All homeowners in condominium projects are affected
by this new procedure but the thing that worries me the most is that
senior borrowers tend to wait quite a while before actually proceeding
with their reverse mortgage applications. We find this to be true
sometimes when they are behind on their current mortgage and even in
foreclosure. Those located in condominium projects may not have the
luxury of waiting if there will be a very long delay just in getting the
project approved as the processing delays could be quite substantial.
Jan. 29, 2010 - I still get a call about once a
week with borrowers asking when they will be able to do a reverse
mortgage on their unit in a cooperative project. After all,
