HECM For Purchase Documents, What Changes Can You Expect To See?

image The HECM for purchase seems to be on everyone’s mind these days.  As we wait for HUD’s guidance on the program I thought I’d pass along some information that Financial Freedom issued about the HECM for purchase documents. 

For the most part, the documents will be the same documents as the non-purchase
HECM standard application package, except for the following revisions/additions:

The HECM Application Truth-in-Lending Important Terms Disclosure contains purchase specific language such as:


“We can terminate your HECM and immediately require payment of the entire outstanding balance in one payment if a Borrower does not physically occupy, establish and use the Property as Borrower’s principal residence within sixty (60) days after the execution of the Security Instrument and the Property does not become the principal residence of at least one other Borrower within that 60-day period”.

The HECM Loan Agreement contains purchase-specific sections such as:

1.8. “Principal Residence” means the dwelling that the Borrower physically occupies, establishes and uses as the Borrower’s permanent place of abode within sixty (60) days after the execution of this Loan Agreement and continuously thereafter, except as otherwise expressly provided in this Loan Agreement. A Borrower typically spends the majority of the calendar year at his or her Principal Residence. A person may have only one principal residence at any one time. The Property shall be considered to be the Principal Residence of any Borrower who is temporarily or permanently in a health care institution as long as the Property is the Principal Residence of at least one other Borrower who is not in a health care institution.

2.2.4 Initial advances required by this Section 2.2 shall be made as soon as such advances are permitted by the applicable law.

2.2.5 Loan Advances may be used to purchase property

You’ve got to give FF some credit for being the first one to put this information out there.  If anyone has closed a HECM for purchase, let me know how it went.

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  • There is no question that Financial Freedom is a real leader and innovator in our industry. They have wrestled with an issue that HUD appears to be waffling on when our industry needs this type of help the most. Kudos to Financial Freedom!!!!! But being “the first on the block” does not mean getting it right the first time. Here are some questions:

    Not being an expert in mortgage law or an attorney, can someone please explain what is meant by “…and the Property does not become the principal residence of at least one other Borrower within that 60-day period” cited from the paragraph on Important Terms — particularly in the case of having only one borrower? Is this paragraph taken completely out of context or was the drafting of these docs just that bad?

    There are very good definitions of principal residence, especially in the tax realm. They do not precisely define that term but lay down some useful guidelines for achieving that status. Why didn’t the authors avail themselves of at least some of those guidelines or again are there other provisions in the docs that do just that? These definitions are not only vague but appear to be “toothless lap dogs” giving little guidance for enforcement or more importantly for seniors to follow.

    For example, why use an adverb like “typically” in describing how much time must be spent at a home in order for it to be considered the borrower’s principal residence? Does that mean if my use is atypical, it will still be found to be a principal residence? I can see attorneys parsing these definitions all day long. What need is there for such anemic definitions? In enforcing the provisions lenders could always bend on the side of leniency but why build that into a definition, particularly this one?

    Is there some reason to state that if one of the borrower’s is out of the home for medical reasons, as long as another borrower lives in the home, it will be considered the principal residence of the borrower who is out of the home for medical reasons? Does the one year medical rule still apply on a HECM for purchase when there is only one borrower? How is the cited medical rule any different than the one for the traditional HECM refinances?

    It seems with time, our documents should be easier to work with and better crafted. The paragraphs cited lead one to conclude otherwise.

  • I’ve been waiting for a great opportunity where RMD readership would be high for a particular subject to add an ALERT ALERT ALERT: SCAM SCAM SCAM. In my opinion, which the legal beagles say everyone is entitled to, the Company I work for as a Loan Officer
    was recently scammed by a lead marketing company. In early December, a man calling himself the marketing director called to say his company, SRC Leads of Miami,
    Fl, had over !,000 leads available in the State of Washington. These leads were the result of a reverse mortgage survey being included in a Valpac mailing. The recipiant, then filled in the survey, signed it,
    folded it three times, and, finally, was required to
    attach a 41 cent first class stamp to return the survey. Naturally, I asked could we have the actual
    surveys, too? No, we were told for confidental reasons, they were not included in the purchase. Normally the Salesman said, the data was sold Nationwide only to a national bank with the initials
    W.F. Allegedly, someone in our State had tried to save some money by duplicating the survey and mailing their own. The leads normally sold for $10.00 to
    $15.00 a piece but because the leads were going unused a special offer would be made at $5.00 for a 100 or
    1,000 for $2.50 each. There was also a money back
    guarantee if a certain RM sales dollar figure was not reached. Sounded pretty good and I thought just on sheer law of numbers alone, we would get our dollar investment back and test a new lead Company and product at the same time. Weeellll, after calling all 1,000 names on the list, we have yet to discover one
    Senior who will admit to filling out and, then, mailing in the survey (and we have YET to make one sale). Now I hate and detest dishonesty in any form. If the Company had just said we have a list of names that we think have a few RM sales therein, and we’ll sell them to you for $2.50 a piece and give you a moneyback guarantee, that would have been perfectly acceptable to me. A decision could
    have been made on that basis. But, to sell by lieing about a non-existant survey, is inexcuseable, in my opinion. WARNING WARNING WARNING If you get called (or get an e-mail, as I did the other day) from SRC Leads, and the selling tool is a survey mailed in by the Senior homeowner, best not buy on that basis unless SRC Leads is willing to show you the actual survey. I’m curious if anyone else in the RM industry has either had better experience with SRC Leads or the same. We now are attempting to get our money returned.

  • Reply to James Veale:

    The “one other borrower” language vis-a-vis initial oocupancy within 60 days is intended to cover the situation where there are two (or more) borrowers and one of them (“a borrower”) dies or otherwise becomes unable to occupy the property within 60 days of closing. It has no application to a single borrower who does not occupy the home within the required time period, and in such a case the loan can be terminated.

    “Residence” is a slippery, elastic concept under the law, as is “principal” residence. It is similar to (but not the same as) “domicile”, which is often defined as the place to which one intends (subjectively) to return when one is away. Residence is not determined solely by the amount of time spent on the premises, as there are lots of folks who spend more than 6 months of the year traveling in an RV or a boat, but eventually they return to what they consider their “residence.” Evidence to establish a principal residence would necessarily consist of many factors to be considered, weighed and balanced in each case. Perhaps some statutory definition that has a rich, fact-intensive history of interpretive case law could be adopted, but beware the purpose for which that definition was originally adopted and the bias that may have contributed to its interpretation. In tax law, for example, the courts have teneded to interpret the law in a way that favors the maximum collection of tax, so as to discourage evaders.

  • Hi: I am just completing my first Reverse Mortgage for Purchase with Financial Freedom. It is not fun being one of the guinea pigs to say the least. They are obviously not used to working with contract, realtors and deadlines. The underwriting has been slower than normal and the conditions have been over the top. We underwrite government loans in-house all day long and never have underwriters be as picky as these have been. I also had them put the file on hold an entire day due to not being sure it was legal in Texas! Luckily they got that straightened out quickly. I just feel they were ill prepared to take in the purchases and needed a bit more training and study before they did. However, I expect to close next week and at leasst now know what to expect.

  • Mr. Evans,

    In the first paragraph you state the obvious. Clearly it requires more than one borrower for the statement I quoted to be fulfilled. However, your response begs two issues. First, why is the quotation written in such a way that it does not exclude the single borrower situation? Second, why make a requirement that makes it impossible for a single borrower to fulfill when with the addition of a simple qualifier it would be obvious the quotation does not pertain to the single borrower situation, such as: “…and in addition, in the case of more than one borrower, the Property does not become the principal residence of at least one other Borrower within that 60-day period”?

    Your second paragraph defends the principle of not providing any significant guidance to borrowers so that borrowers can ensure that the steps they take will satisfy the standards that service providers will apply in measuring if the borrower has made the home a principal residence. Or will service providers base their decisions on no objective standards at all? Since the lenders determine who the service providers will be, it seems incumbent on these groups to provide standards and guidance that seniors can rely on and that service providers can reasonably and easily apply. Call me naïve but providing guidance does not seem to be an unreasonable responsibility of lenders.

    Although insignificant and a clear deflection strategy, your opinion of the intent of tax law in regard to defining a principal residence is at best naïve. I do not believe that the judges in the U.S. Courts, or the state courts would agree with your assertion that their determinations were based on the sole premise of maximizing that jurisdiction’s tax revenues; those decisions are a significant portion of what the term “income tax law” encompasses. The term “income tax law” consists of far more than the mere tax laws of the federal government, the more than 40 states that have such laws, and other income taxing government jurisdictions. It also includes the interpretations of the taxing authorities enforcing them. Beyond that the defenses of taxpayers could be viewed for their relevance in creating guidance for seniors and even recognized income tax treatises. Certainly other sources should be consulted but the objective and subjective indicia of what establishes a principal residence has been significantly reasoned in the body of law that is referred to as “income tax law”.

    Again it is my contention that over time, our loan documents should be clearer, more self-explanatory, and better crafted. The sections cited in the article demonstrated just the opposite.

  • On the subject of SRC from above….I was scammed by this company over 18 months ago, as well as at least 4 other associates at WF. Same verbal statements, same guarantees. To get your ## back under the guarantee, make certain that you document awritten copy of the leads…every line, every name, comment results on every one or THEY WILL NOT REFUND YOUR $ on those leads. Got 75% of my $ after reporting to VISA. Bad folks! And they sell the “exclusive leads” to everyone in the same area. DO NOT PURCHASE FROM THESE FOLKS. Their references are paid no good either. They must be paid by them!

  • Finishing my 1st Purchase this week. Settling in less than 30 days from loan application. We close in-house. I think this will be a great addition to the HECM line-up. Get out and market to your Realtors and referral sources.

  • SRC (Survey Resource Center). SCAM!!!

    I was too scammed. A friend of mine sued them (they didn’t show in court) so she got judgement. They DID send a check thus she got a 100% refund – but it was a hassle.

    I only purchased a small amount so I didn’t sue but I have reported them to the state and the the FTC (many times) and TELL ALL about them as often as I can.

    Tim Linger

  • Thank you Sam and Mr. Tim Linger. When scams occur in
    the RM field, please EVERONE use this well read web site to alert your peers and, perhaps, with publicity help put the scammers out of business. As we help Seniors financially in the last years of their life,
    we should always recognize what a truly blessed job those in the RM industry have. Stopping others
    from wasteing money on fraud through alerts such as these is laudable; operating efficiently keeps costs down for clients as well as mortgage professionals.

  • Is a HECM for Purchase going to require a minimum investment from the buyer? Is the Principal Limit based on the appraised value or the selling price? These are basic fundamental questions that still can not be answered by the underwriters at a top-ten lending institution. The mortgagee letter 2008-33 says nothing about a minimum investment. The appraisal is the foundation of every HECM deal now. Why should it be any different for a purchase deal? And if there was going to be a minimum investment, why would it be larger than a regular FHA purchase? I do not understand how this program could be rolled out and still have all this confusion and unanswered questions. What about a deal where the home can be purchased for much less than the appraised value? With property inventories so high this is a common scenario. What about cashing out land contracts over a year old? Somebody from FHA needs to step up to the plate and straighten out this mess…or maybe I’m waiting on the wrong underwriters at the wrong lending institution.

  • Hello Bill:
    The funds needed at closing will be the difference of what would normally be left as Home-Equity as when we do the current RM. So think REVERSE of a reverse.

    The amount that will be used to calculate the home’s value will be the lesser of the purchase price or the sales price.

    Happy Selling in 2009!!!


    Tim Linger, RMS (10 years experience)

    P.S. Golden Gateway Financial has a HECM for Home Purchase calculator on their website – http://goldengateway.com/

  • Hey Tim, thanks for the response! That’s exactly why I threw those questions out there, looking for the voice of reason. In regards to the “lesser of the selling price or appraised value”, if you read 2008-33 and look at example #3, the sales price is $280,000, the appraised value is $300,000, and the Principal Limit is still the same as in the first two examples. That clearly illustrates the PL is based on the appraised value in all cases. Unless I’m missing something, those examples are contradictory to the “lessor of” rule. Also,I have a deal where the property was bought cheap 2 years ago, documented improvements have been made, and the lender still can’t decide if they’re going to underwrite it based on a new appraisal. It’s obviously not a flip, so I’m amazed at the delay. My email is [email protected]. I would enjoy a one-on-one conversation about this and other issues.

  • Greetings,
    The Purchase Reverse is based on the Apraised value. One of the purposes of the Purchase program was to eliminate a double close. Why have to get a hard money loan and then use a reverse (based on Appraisal). If it were on sales price the borrower would be putting up more of his equity than needed and defeat the purpose of eliminating two closes and costs. The HUD letter 2008-33 is self explanatory and the example proves it. It is the underwriters having questions that are creating the confusion and difficulties in finding suitable lenders to close. This effects the mortgage investor resale of the notes. I believe all these problems will be shortly cleared up and expect this to be a very viable and successful program to benefit many seniors who will derive great benefit from this revision. I welcome any correspondance and expect to close within two weeks.
    Mitchell. My email is [email protected].
    Mitchell J Schultz
    Senior Home Advisors USA
    [email protected]

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