Builders Turning Down Borrowers Using The HECM For Purchase?

With financing harder to qualify for these days, wouldn’t you think builders and developers would be jumping at the opportunity to learn more about the HECM for purchase program? 

Michael Branson from All Reverse Mortgage Company details that two of their customers have been told they couldn’t use a HECM for purchase because they weren’t aware that it existed and builders desire to direct business through its in-house lender.

Branson writes that they contacted the in house lender and were told that if the borrower could not be approved through them, they wouldn’t accept an offer.  Even after offering to go in and explain the program to them and why it was in their benefit to accept the borrowers offer at full price, they declined. 

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After thinking about why the builder would decline an offer in this climate, Branson comes to the realization that there was too much fear of the unknown (ie. HECM for purchase).  When you approach a builder with an approval letter to purchase a home using a program that requires no income and very little credit qualification, I can understand why they might be worried.  One of the in house lenders even asked the borrower for a 1040 to qualify for a HECM… 

However, it doesn’t mean they shouldn’t jump at the opportunity to learn about the program.  I doubt they have tons of other things to do with banks giving tons of loans out to build new homes right now.  Check out the link below to learn more about All RMC’s experience talking to banks and builders about the HECM for purchase.

Purchase Reverse Mortgage, Sellers and Builders Need Education

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  • Hi folks, if I were a builder, and somebody wanted to buy one of my houses, essentially “all cash, with no qualifications “,62, and primary residence, that’s it, and all I had to do was set up the closing, sale price etc., I think I would be kinda stupid to turn this person away???? Any Reverse Mortgage Originator within 100 miles of this builder, should be calling them, and educating them on how this great program works…He might even sell a house or two, when he understands the features, and how they work….Shame on the in-house lender for not doing the due-diligence they should as well….Stay well all….

  • I can appreciate the relationship they have with their own lender however to deny a senior the opportunity to purchase a home could possible lead to a serious complaint to HUD so someone should explain this to them.

  • The builders I have spoken with are interested to hear more but until HUD changes their policy, requiring the certificate of occupancy at application, builders will hesitate recommending reverse for purchase. Most builders do not want to wait 30-45 days after completion for their money. Every day is more interest due on their construction loan which lowers their profit. With the Homekeeper, as in the forward world, an application would be taken 60 days out so the lender would be ready to close when the home was completed with the CO as a closing condition. Hopefully, HUD will rethink the policy.

  • I agree the builder is missing out on a great financial tool to move some of his inventory. Every in house lender should at a minimum, be educated about this product.

    One of the stumbling blocks I see that was probably un-intended by HUD is that the home MUST have an occupancy permit BEFORE you can take an application for a HECM for purchase according to their FAQ page.

    This means if you have a borrower that is interested in a new home it must be finished or completed inventory before you can do anything for them. I could see this being a real problem for builders that are looking at accepting an offer using a HECM for purchase on a home that has not been completed yet.

    What you would basically asking the builder to do is wait to be funded 3-5 weeks after the home is completed.

  • I was a builder for over 30 years and have a few observations on this subject:

    First, builder tie-ins with preferred lenders and title companies will constitute a FTC restraint of trade or a RESPA violation if more favorable term are available elsewhere or illegal kickbacks are involved.

    Secondly, if a RM application is 100% complete, except for the use and occupancy (U&O) certificate, many lenders can fund it in 30 days or less once the certificate becomes available. This is not an unreasonable period of time for a builder to wait for a closing.

    Many building inspectors will issue a U&O certificate once all health and safety items are complete and operational. At this point the home is probably still 15 days away from full completion with decorating and punch list items remaining. Good field supervision can narrow the gap between U&O and closing considerably.

    The loan commitment issued by most forward lenders is still a conditional commitment and there is no guarantee that the buyer can or will close. It is common for a completed home to sit vacant for days or weeks while various stipulations are satisfied. By comparison, a fully documented RM application entails little or no risk of not funding unless some underwriting regulation was ignored or overlooked.

    Currently somewhere between 20-40% builders purchase contracts (depending on the builder) fail to close for various reasons. In some cases the home is actually under construction and becomes costly “speculative inventory” as a consequence. Except for a customer who walks away out of “buyer’s remorse”, the risk of this happening with a RM customer is minimal assuming the application was fully compliant.

    Some small construction lenders will not allow a builder to start a home unless the take-out commitment is non-contingent. This happens where the lender intends to be the permanent lender once the home is completed. In this case the construction lender need to be educated or the builder needs to find another construction lender. In small communities this could be difficult.

    Most builders today, especially the volume builders, are anxious for whatever business that can get. They are funding loan buy-downs, seller incentives, deferred payments, free options, whatever is necessary to generate business. If they are turning down RM clients there are two possibilities. Either they don’t understand the program or they are not suffering that much from the downturn and can afford to lose the business. We saw some evidence of the later during the boom when Realtors were advising clients not to accept contracts involving FHA of VA loans because of “all the government paperwork”.

  • Get in line, when it comes to education:

    Why hasn’t our government educated our senior homeowners & their loved ones on the pros & cons of the FHA Reverse Mortgage Programs.

    Here is the FHA & HUD working with a Federally Insured Product, & I still hear it called ” to be used as a last resort”. ” It just might be the Best Resort & the
    smartest plan.

    All it takes is education.

    David B
    FHA Reverse Mortgage Specialist

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