HUD Publishes HECM For Purchase Counselor Training Presentation

image HUD recently published a HECM for Purchase Training presentation for HECM counselors on its website.  The powerpoint includes slides that covers the monetary investment requirement, allowable funding sources, role of the real estate agent, and other topics regarding the HECM for purchase.

Along with the powerpoint, HUD posted a recorded conference call it conducted for HECM counselors to answer questions regarding the program. Hopefully, this means we are close to receiving the Mortgagee Letter that will provide clarification about the HECM for purchase which becomes active January 1st, 2009.

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HECM For Purchase Training For HECM Counselors 

HECM for Purchase conference call

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  • 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.

  • Oops, I meant to make this point in the comment above:

    The new prohibitions on subordination on all kinds of HECM loans makes the HECM loan a far less potent tool in avoiding foreclosure.

  • 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.

  • Slide #5 merely represents talking points that follow the Mortgagee Letter. The borrower’s cash to close would be: sales price less principal limit PLUS closing costs as you pointed out.

    FHA forward loans always required an Amendatory Clause and Real Estate Certification be completed on a purchase transaction. The ML for the HECM does not specify whether these forms would be required, I would assume they would be. The Amendatory Clause would give the borrower the opportunity to bow out of the transaction should the appraisal come in low.

  • 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 spoke to someone who was on a HUD conference call, and the Amendatory Clause will NOT be required for a HECM purchase. I don’t understand why they can’t make simple items like that consistent with FHA policy on forward loans.

    I don’t like it.

  • I agree that the non-allowance of gift funds is distressing and hardly seems fair. One helpful way to work with this regulation is to have a potential gift paid towards the borrowers current mortgage so that that their payoff is less. This will make more funds available for the purchase transaction. This is obviously only work in a situation where the borrower is selling one home and buying another with a HECM Purchase Money Mortgage.

  • 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.

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