The difficulties that surround establishing a reverse mortgage transaction with a condominium as the liened property is a persistent issue in the larger reverse mortgage industry, and requires a degree of sensitivity from loan officers working with potential borrowers who are trying to use a condo as the basis for a reverse mortgage.
Because of restrictions that descend from the Federal Housing Administration (FHA) regarding condos and Home Equity Conversion Mortgages (HECMs), loan officers can sometimes find it difficult to manage a borrower’s lofty expectations in aligning all of the persistent problems that plague condo-based reverse mortgages. However, some recent developments in the market may indicate that things could start to become easier.
How proprietary products can provide more options
For condo borrowers with enough equity to justify it, the less limited plethora of proprietary offerings may be a viable option to alleviate those concerns, according to Christina Harmes, assistant manager of the C2 Reverse division of C2 Financial Corp in San Diego, Calif.
“When working with a condo owner, if we have identified that the project is not FHA approved then we typically present the FHA option along with [the proprietary options],” she tells RMD in an email. “Some homeowners have a good feel if their homeowner’s association (HOA) will be helpful or not in getting approval, and in the lower values the HECM proceeds and rates are more appealing.”
Downsizing into a condo remains an appealing prospect for many seniors. This is because of their generally smaller size, community feel and greater ease of maintenance, Harmes says. Downsizing into a condo can also be easier for someone on a fixed income due to the often smaller price tags they have when compared with single-family houses.
Managing expectations can be tricky, Harmes says, but the potential ability a senior can have in going either with a government-insured reverse mortgage or a proprietary product can allow for an easier transaction, especially if the presiding loan officer is open and transparent about the unique realities faced by condo borrowers.
“We’re very upfront with the homeowners about the two options and what will be involved with each. Many times, [the borrower will] talk to their board and from there, they have a better idea if getting FHA approval is realistic or not,” Harmes explains. “There is also a delay, so when they are in a hurry for one reason or another, the [proprietary loan] is the choice option [as long as] there is enough equity to do it.”
“Condo approval [remains] a huge issue,” says Mac Tennant, president of Access Reverse Mortgage Corporation in Clearwater, Fla. “The last [transaction] we completed took a year [to finish]. We stopped after that due to the number of man hours involved, but also amid the rumors of FHA relaxing the rules. That was two years ago, and still nothing [on that front].”
Proprietary products do present some possibilities, Tennant adds, particularly for condos in the mid-to-high price range, he says.
One of the major issues that Tennant has identified, particularly when it comes to trying to manage the expectations of borrowers, is a lingering rule that affects all new and incoming tenants.
“The biggest hangup we have encountered disqualifying solid associations is the rule prohibiting any sort of approval process for new residents,” he says. “Most nice condos have such a rule, and FHA doesn’t allow it.”
When asked if he provides any advice for condo residents who potentially want to seek out a reverse mortgage, however, Tennant could only think of the persistent difficulties that so often plague the process of getting a reverse mortgage on a condo.
“My advice is ‘buy a house, a villa or a townhouse,’” he joked.