No Gifts? That’s not helpful at all…

A Gift Letter is one of the normal examples of Verification of Funds documentation for Real Estate Purchases currently used and accepted. It states that the gift does not have to be repaid and is signed by the gifter to certify that the gift is not an undisclosed debt or lien.

But now family members cannot chip in to help Mom & Dad buy a more suitable home?

The HECM for Purchase program appears to be so restrictive that it starts to wander up-market from the Middle Americans which FHA’s mission is to serve. The restriction on gifts is one example of this.

Another is that ‘HECM for Purchase’ has apparently crested new restictions preventing subordination of prior liens for the other well-established HECM reverse mortgages: those on existing primary residences and ‘HECM Refinances’.

Previously, FHA would allow subordination of a prior lien under some conditions, but apparently not any more. If I’m mistaken on this somebody please let me know because this means we now lose access to a HECM strategy to reduce a borrowers monthly payment obligation in cases where we have an existing lender willing to subordinate. There were more of those out there than you might think.

Time for all the Whos out in Whoville to sing louder; unlike the Grinch, the FHA’s heart is shrinking.

I actually listened to the recorded conference call. It was scary to learn how many counselors out there don’t understand the HECM program, and based on how the HUD people presented the HECM for Purchase program, they were even more confused!

Why HUD won’t subordinate was not explained, except to state they are trying to avoid fraud. Why gift money is not allowed was not explained. The reason this program came about, according to the moderator,is because HUD was seeing so many seniors buying homes with a forward mortgage, and then turning around and paying off their mortgage with a reverse mortgage. So the reverse for purchase will result in the senior only paying on one closing. That’s good for the senior, but how is there enough equity in the home just purchased, to net enough from the reverse to pay off the mortgage? Say you’re 62. You buy a house for $200,000. You put 10% down, and get a mortgage for $180,000. How are you going to net $180,000 from the reverse mortgage to pay off the $180,000, if there’s only 10% of equity in it?

While this has been in the works, I envisioned it helping the seniors who want to downsize. They sell their $200,000 house, and buy a $100,000 condo. They put $10,000 down on the condo, and finance the rest with a reverse mortgage. The amount of profit they keep is now their nest egg, which can be used for taxes and insurance, etc. That’s how I’ve been talking it up to potential clients. Any other advantages, I’m all ears.

Because an updated Mortgagee Letter clarifying the HECM for Purchase is needed, some lenders are delaying offering this product as of January 1st. Has anyone else encountered this?

I listened to the Conference Call and I heard that both the Ammendatory Clause and Real Estate Certification will be required.

Sally, I’ve googled a bit and can’t come up with any statistics, but my guess is that seniors are putting much more down than you mention in your comment, most likely to lower their payment to match a lowered income from pension/SS etc.

I agree that this is a great tool for down-sizing, but it’s also a great tool for moving laterally, or even up. Say you’ve saved a nice nest-egg, perhaps because you live in a low cost area. So, when you want to move, your home isn’t worth enough to finance a move to the higher cost area where your children live, or your favorite golf course is located without tapping into that nest-egg. This program allows someone with a $150K home in a small town to afford that $250K home in Sun City without tapping the nest-egg and without requiring a mortgage.