Lenders Struggle to Reach Builders with Reverse Mortgage for Purchase Program

Builders and developers are another group in addition to realtors that has yet to be educated on the realities of the HECM for Purchase program. “We need to take the time to understand the realities of their business and be able to talk to them in their language,” says Monte Howard, Affinity Relationship Director at Generation Mortgage.

Builders and developers are trying to move large volumes of inventory at this point, and the HECM for Purchase program might be able to help—especially in retirement communities.

But Howard notes that he has yet to reach out to the builders and developers, on account of feeling that pursuing such relationships is premature until the reverse mortgage industry has “their ducks in a row.”   He notes that when the reverse mortgage industry approaches builders, it is important that they come through the door with more than just a loan product. HECM for Purchases are still an unknown for most people, but he notes the time for them to be marketed to builders and developers is coming.

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So why hasn’t the industry whole-heartedly embraced telling realtors, builders, and developers about the HECM for Purchase program? It is because, according to Howard and Derry Hampton, a reverse mortgage professional at Security 1 Lending and a licensed realtor, many still don’t fully understand it themselves. Many lenders have not yet taken the time to understand the product, and most loan companies have yet to build marketing campaigns around it. Without the industry taking it upon themselves to learn and understand the product, it is hard to expect realtors, builders, and developers to do the same.

Howard notes that, “It’s one thing to show somebody the light, but you also have to show them where the switch is.” What’s been missing is an explanation of the HECM for Purchase process. While people may be becoming familiar with the HECM for purchase product, Howard believes that the volume of HECM for purchases will increase once there is better understanding of the HECM for purchase process. He notes that some title companies are still uncomfortable with the transactions.

Until the reverse mortgage industry takes the time to educate itself and others on the HECM for Purchase product, it remains extremely unlikely that HECM for Purchase transactions will meet the FHA’s expectations next year.

Written by Reva Minkoff

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  • There are some glitches in the program starting with the mortgagee letter regarding purchase guidelines. On a newly built, or contracted “to-be- built” home, FHA doesn't allow any language in the purchase contract that refers to allowances and/or incentives. Since the principal limit is based on either the contract “net” sales price OR the appraised value, WHICHEVER IS LESS, the net contracted price should be the focus and incentives, which are commonplace, should not be a factor. Major national builders seem unwilling to change their contract language and delete all references to allowances. After all, allowances (incentives) are a common marketing tool. Since there always must be an appraisal, FHA would be well advised to revisit this provision and remove all language pertaining to allowances and substitute “net sales price” after any/all incentives, allowances, etc. This may seem like an insignificant point to some, but is an impediment when trying to market the HECM to buiders and their potential senior customers. The purchase guidelines should be modified to be far more user-friendly than currently written.

  • For builders, the issue is MUCH deeper than education or helping builders understand the product. The reality is that the current HECM for purchase product is not conducive to new construction. HUD has imposed too many requirements – such as requiring construction completion prior to app, prohibiting incentives, and requiring “sufficient icnome” to cover payments on an unsold home – that render the purchase product ineffective except in rare circumstances. If you couple these factors with reduced principal limits, the HECM for purchase product is just too cumbersome and expensive for new construction. We will not see this product take off with builders until HUD relaxes some of its restriction or until proprietary products that are designed for purchase business re-emerge.

  • Mike and Larry are right. The world of builders and developers is entirely different from the world of real estate licensees. I work with one developer in particular regarding his projects and we work completely around HECMs for purchase; they are too, too difficult to work with.

    As a California real estate broker for the last 18 years, it is troubling to read those who are not experienced with builders and developers trying to instruct us about why the HECM for Purchase is not taking hold in that community. Everyone wants to be considered an expert even if they admit to having no experience. Guessing does not help.

    We need one voice not many voices with meaningless ideas that merely confuse what the real problems actually are. Thanks to Mike and Larry, we have real information.

    However, I would quickly point out, the insight by Mr. Hampton regarding real estate licensees is quite helpful. [It is kind of insulting to some of us that the term “realtors” is used so much on this website when that is a title that is reserved for real estate licensees who are members of the National Association of Realtors.]

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