Comments on: HUD Issues Guidance for Subordinate Lien Financing Under the HECM

By: rainmand

rainmand — Tue, 08 Dec 2009 20:09:00 +0000

I’ve re-read the Mortgage Letter several times and the key words are “in connection with the transaction”. The example in the Mortagee Letter supports those key words with the example, whereas the borrower needs to obtaining “new” subordinate financing to enable the HECM to work – not pre-existing financing.rnrnThat clearly says a pre-existing second lien can be subordinated.

By: rainmand

rainmand — Tue, 08 Dec 2009 18:09:29 +0000

I've re-read the Mortgage Letter several times and the key words are “in connection with the transaction”. The example in the Mortagee Letter supports those key words with the example, whereas the borrower needs to obtaining “new” subordinate financing to enable the HECM to work – not pre-existing financing.

That clearly says a pre-existing second lien can be subordinated.

By: Sarah Hulbert

Sarah Hulbert — Tue, 08 Dec 2009 16:35:00 +0000

In the case written by Mr. Kelly, the lender to whom my firm delivered the loan approved the loan because there was not a new second lien established in connection with the reverse mortgage. There was an existing second lien held by a bank who executed a subordination agreement whereby they agreed to take a subordinate position behind the first and second liens created by the HECM.rnrnPast guidance clearly stated that no NEW subordinate financing could be created in conjunction with the HECM transaction. In our borrower’s case there was no new financing, rather an existing lienholder agreed to subordinate.rnrnThe guidance issued in ML 2009-49 appears to change HUD’s previous stance with regards to existing subordinate liens. However, many individuals in the industry would appreciate clarification from HUD that ML 2009-49 does in fact clearly prohibit ANY subordinate financing in conjunction with the HECM, be it existing or new.

By: Sarah Hulbert

Sarah Hulbert — Tue, 08 Dec 2009 14:35:39 +0000

In the case written by Mr. Kelly, the lender to whom my firm delivered the loan approved the loan because there was not a new second lien established in connection with the reverse mortgage. There was an existing second lien held by a bank who executed a subordination agreement whereby they agreed to take a subordinate position behind the first and second liens created by the HECM.

Past guidance clearly stated that no NEW subordinate financing could be created in conjunction with the HECM transaction. In our borrower's case there was no new financing, rather an existing lienholder agreed to subordinate.

The guidance issued in ML 2009-49 appears to change HUD's previous stance with regards to existing subordinate liens. However, many individuals in the industry would appreciate clarification from HUD that ML 2009-49 does in fact clearly prohibit ANY subordinate financing in conjunction with the HECM, be it existing or new.

By: Adam Kritzer

Adam Kritzer — Mon, 07 Dec 2009 15:09:26 +0000

While the letter was ambiguous, I think it specifically forbids NEW subordinated financing, rather than EXISTING second liens. In the case of Mr. Kelly's story, then, it seems as if this was perfectly legal.

You can read my full analysis here:
http://www.reversemortgage.net/confusion-over-s…

By: James_E_Veale_CPA_MBT

James_E_Veale_CPA_MBT — Thu, 26 Nov 2009 04:47:05 +0000

REVGUYJIM,

A few days ago, Admin cited a story written by a genuine friend to this industry, Mr. Tom Kelly. He is a good writer but hardly an authority on HECMs. Mr. Kelly wrote a story based on a loan provided by the firm Mrs. Sarah Hulbert works for. Mrs. Hulbert is a former NRMLA chairwoman.

There is no way that HUD would allow a second mortgage. HUD must have the second lien. The existing second referred to the story could have become a third. I hope RMD will interview Mrs. Hulbert and provide a clear summary of the facts.

By: Admin

Admin — Wed, 25 Nov 2009 16:33:14 +0000

Louise,

I'm investigating more on this topic, will keep everyone posted. If anyone has any insight please share.

By: Louise321

Louise321 — Wed, 25 Nov 2009 16:19:59 +0000

Was the loan in some of the stories I've read subordinated to a HECM or a proprietary loan?