State Confusion About Reverse Mortgage for Purchase

Playing what seems like a “game of chicken,” state lawmakers and reverse mortgage originators are inviting the other side to “go first” in determining how the new HECM for Purchase program will unfold. H4P was authorized by the federal Housing and Economic Recovery Act (HERA) of 2008, allowing homeowners age 62 to purchase a home and take out a reverse mortgage in the same transaction, incurring only a single set of closing costs.

In some states such as Massachusetts, lenders subject to state regulation – because they lack federal pre-emption – have determined that they can not legally offer the product. Others who have the OCC “immunity,” like MetLife Bank, report they are offering H4P in Massachusetts, having rolled out the product “a couple of weeks ago,” according to a company executive, and planning to do the same “in most other states. We are already starting to see some activity,” the person told RMD, adding, though, that “We don’t think it will generate much business this year” due to the national recession.

But, John Prendergast, chief risk officer, Massachusetts Department of Banking, reports there have been “no HECM for Purchase applications in the state [so] we have not denied any. [But] if someone wants to do them, there is no Constitutional issue and there has been no discussion about that.” The MetLife executive suggests that, “The state has inadvertently created ‘channel conflict’ for institutions like us,” noting that company brokers may be restricted. “We’re not insensitive to our brokers [plight],” the executive offered, adding that the company will present a proposed compromise to Massachusetts banking officials, “as a courtesy.”

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Kevin Cuff, executive director, Massachusetts Mortgage Bankers Association, says “there is a lot of confusion and misunderstanding about [H4P]. A handful of programs are waiting for approval,” he states, noting that “a number of banks and one mortgage company, on the Massachusetts/New Hampshire border, are hoping for a resolution. There’s a lot of mish mash of information that’s not really being absorbed by either party,” according to Cuff.

Neil J. Morse has been a communications professional working in the mortgage finance industry for more than a decade, currently specializing in the reverse mortgage sector. He can be reached at nmorse@morsecommunications.com

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