I certainly wish we would have known about this prior to my taking an application and getting all the way through to a week before close of escrow.

Tam

Virginia

Here is the lenders announcement:

“We have just clarified with HUD that a borrower who has had a foreclosure in the last 3 years, whether an FHA loan or not, is not eligible for a HECM for Purchase. This includes any foreclosure proceedings starting with an NOD having been filed all the way the sale.

Given current market conditions and the HECM for Purchase being such an attractive option for borrowers wanting to downsize, it is important to properly counsel your borrowers as they determine how to handle the disposition of their current home. They need to understand the HECM for Purchase guidelines and to consult with their own counsel about how best to proceed.”

They continued on specifically about the loan in question-

“They (HUD) also specifically addressed extenuating circumstances on the file.
Because the borrower has cash assets and could have kept the payments current, they stated that there were no circumstances that appeared to be extenuating.

As for their rationale, they referred us back to the 4155:

D. Previous Mortgage Foreclosure. A borrower whose previous principal
residence or other real property was foreclosed or has given a deed-in-lieu of foreclosure within the previous three years is generally not eligible for a new FHA-insured mortgage. However, if the foreclosure was the result of documented extenuating circumstances that were beyond the control of the borrower and the borrower has re-established good credit since the foreclosure, the lender may grant an exception to the three-year requirement. Extenuating circumstances include serious illness or death of a wage earner, but do not include the inability to sell the house because of a job transfer or relocation to another area.”

I hope that this info helps a senior make the best decision.

Tam

Thanks for posting, “If the current home is in foreclosure or has had a Notice of Default issued, FHA will not allow the borrowers to use HECM for Homepurchase for three years.” Where did you find this info? I have been searching for this type of information near and far… unfortunately, most US retirement communities are in declining markets, and I see this as a potentially common issue for seniors who are underwater in their homes and can’t sell.

If the current home is in foreclosure or has had a Notice of Default issued, FHA will not allow the borrowers to use HECM for Homepurchase for three years. The lender CAN make an exception for extenuating circumstances. However, if the borrower has enough cash as a down for the new home, they may not consider any extenuating circumstance as a hardship, as the borrower had enough assets to keep the current home from going into foreclosure in the first place.

Also, if the borrower is planning on keeping the home and renting it out, they must have assets or income enough to afford the old mortgage payment.

Its a whole new Reverse Mortgage world out there! Proceed cautiously.

No doubt the counselor is right. We will need to find more avenues to let seniors know that HECMs can be used in a purchase transaction.