Frustrated by regulations that can slow the Home Equity Conversion Mortgage for Purchase program, one Iowa lender decided to employ a unique end-around to help borrowers buy a new-construction home with a reverse mortgage.
Fidelity Bank, based in West Des Moines, Iowa, announced the completion of a “forward” home equity line of credit-to-HECM purchase transaction this week, which allowed the homebuyers to move in as soon as the certificate of occupancy was issued — instead of having to wait for that document just to apply for a HECM.
“The reverse world needs change,” said Cecilia Delgado, director of Fidelity Bank’s reverse mortgage division. “They need innovative thinkers.”
The buyers made a 50% down payment on the newly built $450,000 home and took out a HELOC for the rest, according to Delgado. Then, as soon as the certificate of occupancy was issued, Fidelity paid off the builders and allowed the buyers to move into the home. A little less than two months later, Fidelity arranged for a refinance of the existing loan into a HECM, essentially completing the HECM for Purchase transaction.
Fidelity senior vice president Rick Davis came up with the plan, Delgado said, as a way to innovate the occasionally vexing H4P program. The industry has long called on the Department of Housing and Urban Development to change the rules regarding H4P transactions, which currently prevent borrowers from submitting paperwork until after a certificate of occupancy has been issued for a new property — a factor that has made real estate agents, builders, and buyers skeptical of the process.
“The reverse world is just a little antiquated,” Delgado said. “They do things a little behind the times. We really need innovative thinkers and people that think out of the box.”
Delgado also speculated that the more “manual” nature of the reverse mortgage process may be behind the lack of HECM for Purchase traction, noting that seniors can’t use e-signing tools and face more stringent vetting.
Fidelity already has four more of these HELOC for Purchase transactions in the works, including one where the buyers are receiving a significant portion of their down payment from family members — something that Delgado said would be far harder to document under the regular H4P process.
“It’s a win-win situation for everybody, but most importantly, the borrower is able to move in right away,” Delgado said. “We’ve now opened it up.”
Written by Alex Spanko