After more than two years of waiting, residents at the Sun City retirement community in Arizona can once again open Home Equity Conversion Mortgages thanks to a new approval from the the Department of Housing and Urban Development.
Michael Thomas, a reverse mortgage specialist with V.I.P Mortgage, Inc. in Peoria, Ariz., said he received word from his underwriting department today that HUD will once again approve the properties.
“I had to sit down and look at my 7 banker’s boxes of files, and say, ‘Oh my goodness, I think something just happened,'” he said.
The moratorium began in late 2016, when HUD began enforcing a decades-old and rarely observed “free assumability” clause, which protects the government from being responsible for potential costs in the event of a foreclosure. The Recreation Centers of Sun City, the community’s governing body, charges each new homeowner a $3,500 asset preservation fee, which funds capital improvements and amenities, such the golf course and pools. In the event of a reverse mortgage foreclosure, the FHA would technically be responsible for the fee, as it applies whenever the property changes hands.
Sun City had responded that their asset preservation fee was exempt under the Federal Housing Finance Agency’s “Excepted Transfer Fee Covenant.” This type of fee is “acceptable when it requires payment of the Fee to a covered association and limits the use of the Fee exclusively to purposes that provide a direct benefit to the real property encumbered by the Fee covenants,” according to a letter from HUD.
The recent letter from HUD dated October 5, 2018 states that after more review, the department agrees.
“Accordingly, the existence of this private transfer fee covenant, as described in the Recreation Center of Sun City, Inc. corporate bylaws, as amended June 30, 2016 and the Board Policy Resolution No. 24, “Preservation and Improvement Fee/Fund,” would not render a property ineligible for FHA insurance,” the letter states.
Now Thomas must start going through the files of more than 150 prospective borrowers.
“I’m so delighted for our clients and the people in need, regardless of who they get [the reverse mortgage] from,” Thomas said. “It’s a welcome relief and it’s been a long time coming.”
Sun City West, a separate community about 30 miles northwest of Phoenix, continues to wait for approval from the FHA, despite their governing body rewriting a bylaw to comply with FHA guidelines.
Meanwhile, loan originators who have worked with residents at other Sun City communities that are located throughout the U.S. said they are experiencing the same roadblock.
Written by Maggie Callahan