A key distinction between “forward” and “reverse” mortgages is that the Department of Housing and Urban Development doesn’t allow any so-called seller concessions for its reverse mortgage for Purchase program.
The program, which allows a qualifying borrower to purchase an entirely new home or relocate by way of a reverse mortgage, has failed to gain traction after its first two years on the market. Many say, however, the product could be a reverse mortgage sleeping giant. Seller concessions could be a step in the right direction, the industry says.
Back in February, the Federal Housing Administration (FHA) released revised seller concession rules for all FHA lending and requested comments from lenders. The updated rules for seller concessions limit the amount a seller can contribute to the closing costs.
Although the rules have been updated, they still exclude the reverse mortgage for Purchase program—something industry trade group the National Reverse Mortgage Lenders Association (NRMLA) went to bat for in a recent letter to HUD in response to the request for comments.
“Given the large monetary investment required by a senior in connection with the HECM for Purchase loan transaction, that these transactions do not represent a large portion of the loans which the FHA insures, that the new rule will limit concessions to 3%, and that the rule making does not posit or further justify limiting the use of seller concessions in connection with HECM for Purchase loan transactions, we respectfully request that the FHA allow seller concessions in connection with HECM for Purchase loan transactions,” reads the letter, signed by NRMLA executive vice president Steve Irwin.
Allowing for seller concessions would be “excellent,” says Jerry Tomlin, reverse mortgage specialist at Atlantic Bay Mortgage Group, based in Virginia Beach, Va.
“Because of the market we’re in right now, seller concessions dominate almost all contracts,” he says, calling it an added incentive “any time you can get the seller to help pay some of your closing costs, especially with a loan that has a perceived high cost already.”
Another perk is that allowing seller concessions for both “forward” and reverse-for-purchase transactions would be one less thing to explain to Realtors or prospective homebuyers who don’t understand this caveat of the reverse mortgage for Purchase program.
“Education is always the hardest part of the reverse mortgage, and once you’ve gotten over the hurdle of the reverse mortgage concept, and can move to the Purchase, it’s easier to say, ‘There are no caveats,’” Tomlin says.
While it’s unclear how much HECM for Purchase loan volume would increase were the rule to change, it would make the process “so much easier,” Tomlin says.
The Purchase program, which HUD launched in 2008, hasn’t exactly gotten off to a booming start. Wells Fargo and Bank of America, two lenders that have since left the reverse mortgage business, were in the top three for HECM for Purchase volume, along with MetLife.
Even then, the numbers aren’t too impressive: While Wells originated 1,000-plus between December 2008 (when the program was introduced) and November 2011, according to Reverse Market Insight data. The number drops steeply for second-place MetLife, which had 300-plus loans as of November 2011. Bank of America and Cherry Creek both posted just 100-plus Purchase loans in that time frame, and Security One rounded out the top five with less than 100.
There may not be a huge market for this type of loan, but Tomlin says he appreciates NRMLA’s efforts.
“What they’re trying to do for us is put us on a level playing field with other loans available to seniors where they can get seller concessions,” Tomlin says, adding that it’s an “unnecessary rule that was written in.”
And if HUD does begin allowing for seller concession on HECM for Purchase transactions, it’s a win for everyone involved, according to Tomlin.
“I don’t see any downsides to it; there’s no danger in it, especially with the limit,” he says. “It’s not harming the senior in any way; it’s not going to harm HUD with their mortgage insurance; it’s not going to increase T&I defaults; and helps seller sell their houses.”
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