Just days after Arizona’s Sun City community announced that its residents could begin obtaining Home Equity Conversion Mortgages, more Sun City 55-and-over communities have gotten the reverse mortgage green light.
Originator Michael Thomas, a reverse mortgage specialist with V.I.P Mortgage, Inc. in Peoria, Ariz., said he received a lender alert from Reverse Mortgage Funding on Friday, announcing to its wholesale channel that more communities are deemed approved. In addition to Sun City, AZ, applications could begin being taken for Sun City West in Arizona, Sun City Anthem in Henderson, NV, and Sun City Anthem in Florence, Ariz, the letter dated October 19th states. The letter also states that Arizona’s Sun City Festival and Sun City Grand are both under review.
“We are pleased to announce that [the Department of Housing and Urban Development] has provided guidance that the Preservation and Improvement Fee (PIF) charged at Recreation Centers of Sun City has been confirmed to meet the definition of an acceptable “Excepted Transfer Fee” based upon the FHFA Direct Benefits Test in 12 CFR 1228, and as indicated in RMF Lender Alert 2017-03,” the letter reads.
The letter adds that “acceptability is based upon the current use of the PIF and may not hold true should such fee be modified in the future.”
Reverse mortgage in the communities were put on hold in late 2016, after HUD began enforcing an older, rarely used “free assumability” clause, which protects the government from being on the hook for costs when a foreclosed property becomes the property of the FHA. The Sun City communities charge new homeowners an asset preservation fee, used for funding capital improvement and amenities, and in the event of a foreclosure on a HECM property, the government would be liable for the fee. The FHA began denying these reverse mortgages with this technicality in mind.
Last week, Recreation Centers of Sun City, the governing body of Sun City announced that it had received word from HUD that residents could begin the reverse mortgage process. The governing body had previously appealed to HUD, stating that their asset preservation fee was exempt under the Federal Housing Finance Agency’s “Excepted Transfer Fee Covenant. The HUD letter — which Sun City received October 5 — stated that department agreed, finding the this type of fee to be “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.
“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.
Earlier this year the Recreation Centers of Sun City West amended their bylaw after voting to remove the fee for the “foreclosing lender or the lender’s governmental guarantor (e.g. HUD)” in the event of “involuntary transfers” of property.
Written by Maggie Callahan