NY Times: Reverse Mortgage Enables Seniors to Purchase Home

image New York Times writer Bob Tedeschi wrote about the HECM for purchase program which enables older borrowers to use a reverse mortgage to buy a principal residence.  While the guidelines for the program were released early in 2009, the program is just starting to catch on.

“The problem had been that lenders needed more information from the government about acceptable underwriting procedures,” said Peter Bell, the executive director of the National Reverse Mortgage Lenders Association.

AARP’s recently retired national program coordinator of its reverse mortgage education product said the guidelines changes would help borrowers improve their living circumstances without forcing them to relinquish all their savings for a new home. 


Bronwyn Belling, who recently retired as the national program coordinator of the AARP’s reverse mortgage education project, said the recent guideline changes would help borrowers improve their living circumstances without forcing them to relinquish all their savings for a new home. She noted, though, that the loans can be complicated.

Here’s how a typical transaction might work: Let’s say a 75-year-old woman lives in a home valued at $700,000, with an outstanding mortgage of about $100,000. She sells the home for $700,000 and finds another — closer to the grandchildren, with no staircases and minimal upkeep — for $625,000.

Instead of securing a traditional “forward mortgage” for the new property, she could obtain a reverse mortgage.

The woman would qualify to receive $439,000 from the bank for that new home, based on lending guidelines, according to Cheryl Chapin MacNally, the national reverse mortgage sales manager for Wells Fargo Home Mortgage.

Reverse Mortgages for Home Purchases (NY Times)

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  • I hate to rain on this parade, but it will potentially cost more to buy that home if the Senate passes the Cap and Trade Bill. Here's why, from an excellent synopsis I stole from: http://activerain.com/blogsview/1135812/will-ca

    “The bill contains language that will mandate an EPA inspection on any home or office building and that inspection will require that the home must meet current EPA standards for energy efficiency. So, if you are buying homes in disrepair, you essentially cannot buy those homes from banks or other investors unless and until the home is brought up to EPA mandated standards for energy efficiency. You will also be required to have energy efficient appliances in the home as well as energy efficient windows and doors. You know. The things you were going to fix when you bought it and the reason for your discount on the property at purchase? Yeah. That. Your discount is going to be mandated out and so will the idea of buying cheap, fixing, and selling will be moot. As if all of that isn't bad enough, the EPA standards will require that your home is fully up to a federalized building code before selling. The source of the federal building code? You probably guessed. California's building code. You know. The state that is about to go bankrupt because it has overspent its budget? Yeah… that one.”

    The home would have the extra costs, and delays, of an EPA inspection and the costs of the retrofitting.
    More bad news. Some CPAs and other advisors say an alternative to a RM is to sell the home and move to a lower cost domicile. Great strategy, assuming you don't mind being uprooted, of course, except if this bill passes, the homeowner would have to retrofit the home before the sale and after the inspection.
    However, could this be a good thing for RMs since that extra cost and delay are avoided? I leave that to the RM experts to figure out.
    I'm off to contact my senators saying I oppose this very rushed and largely unread bill passed a hurried House.
    Sorry for the politics.

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