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55+ Communities Stuck in Reverse Mortgage Limbo as Freeze Continues

Despite almost two years of public support and amended bylaws, residents in one of Arizona’s 55-and-up communities must continue to wait to open reverse mortgages.

Residents of the Sun City West active adult community, about 30 miles northwest of Phoenix, got a glimmer of hope in May when their governing body rewrote a bylaw to comply with Federal Housing Administration guidelines.

This change should have eased the path for residents to open Home Equity Conversion Mortgages, but the Department of Housing and Urban Development responded by saying it was pending review.

Liz Recchia, the government affairs director of the West Maricopa Association of Realtors, said that is
the last they heard since the spring.

“HUD indicated to us in late 2016 they would take a look at the issue,” she said. “In early spring 2018 they indicated they would not be reviewing the issue.”

Michael Thomas, a reverse mortgage specialist with V.I.P Mortgage, Inc. in Peoria, Ariz., said he has plenty of disappointed potential borrowers.

“We thought we were ready to rock and roll,” he said. “We started making appointments and then HUD said, ‘We’re going to review the entire process.’ Now we’re back where we were before.”

A spokesperson for HUD did not respond to a request for comment by press time.

The saga 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. Sun City West’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.

After the work of a dedicated task force, the Recreation Centers of Sun City West voted 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. Other foreclosure purchasers are still responsible for this fee.

Potential borrowers were excited to open their loans, but then HUD put the brakes on again,” Thomas said.

Currently, Thomas said he has 75 HECM applications for Sun City West and 150 for Sun City, a neighboring community that has chosen to keep their “Preservation and Improvement Fee” in place as-is.

“It’s a tragic problem that could be fixed with a pen,” he said. “It’s tragic because people are actually suffering. People are actually having trouble surviving.”

Loan originators who have worked with residents at other Sun City communities in the U.S. said they are experiencing the same roadblock.

Ann Merritt, a reverse mortgage production assistant with Finance of America Mortgage in Las Vegas, said the rule enforcement at a local Sun City development has represented a large loss of business. One of her loan officers estimated that about 40% of whose business came from the Sun City community over the last 10 years, she said.

“FHA insured thousands of these loans and now all of a sudden they won’t do it,” she said.

While awaiting word from HUD, Recchia’s organization is taking a two-pronged approach to clear up confusion.

First, the group is urging lenders and investors to become educated on each community’s individual by-laws, considering each application on a case-by-case basis. While many communities still have the fee, “several” have changed their governing documents to comply with the free assumability clause, she said.

Secondly, Recchia said her organization is working to make sure full disclosures are made during the purchase of a property that would be denied an FHA loan. Doing so would protect both the homeowner and the real estate professionals, she said.

“Our agents get people who call and say that they would not have purchased the property if they knew they could not get a reverse mortgage,” she said.

Written by Maggie Callahan