Dear Cynic,

Do you blog?

Congratulations to Mr. Lewis. Even though I do not agree with him, he has responsibly and forthrightly presented an excellent case for his conclusion. It is not overly exaggerated or without substance. I applaud him and wish more industry leaders would follow his example.

Why shouldn’t the HECM limit be permanently increased to $625,500? From day one, there are many in government and outside, who do not believe that HUD got it right except that post July 30, 2008 the limit should have been capped at $417,000. All this legislation does is force HUD to accept the alternative interpretation even though the higher limit is only proposed for one year.

Further it was not just the evaporation of the proprietary (or so called jumbo) lenders that hurt. It was also their unannounced (in most cases) and sudden changes in appraisal standards that began months before which caused havoc to many potential borrowers. Mr. Lewis may feel the “roller coaster ride” for seniors was warranted; I for one do not. What this downturn clearly showed is that the so called jumbo lenders who thought they were prepared for anything were not. A permanent increase in the lending limit would mean fewer seniors would have to get on the “jumbo roller coasters” when jumbos come back.

Also there is more far to the problem of the HECM for purchase program than Mr. Lewis discusses. Here is an example:

Currently we are working with a couple who want to buy a home out of foreclosure from Fannie Mae. Fannie Mae will not pay any seller closing costs; however, they will give a $1,590 credit. This immediately makes the buyer ineligible for the purchase program based on the current HUD criteria:

• There can be no seller credits
• The seller cannot pay the buyer’s closing
costs and vice versa.

The buyer’s real estate agent (the buyer’s long-time friend) cannot get Fannie Mae to agree to adjust the selling price so that each party pays their own share of the closing costs and there is no impact to Fannie Mae. As a result the buyer will probably not get this home.

In doing some very limited target marketing to potential senior homebuyers the problem has not been with their interest. We actually have two others who would buy tomorrow if the limit were $625,500.

It seems that even if HECMs had the higher limit, HUD is not interested in helping seniors acquire foreclosed properties from Fannie Mae or others with similar rules. That really does not make any sense. Yes, credits can exaggerate the actual purchase price of the real property and perhaps result in undue risk to FHA. A rational alternative is to allow limited credits not to exceed the seller’s share of reasonable closing costs.