Reverse Mortgage Information

The U.S. HUD (Housing and Urban Development Department) has published a Mortgagee Letter 2009-11.

It includes a compilation of guidance, issued under ML 2008-33 and is now intended to address the aspects of the “HECM for Purchase” Program. Some of the main points that are in this ML (Mortgagee letter) 09-11 are as follows:

Regarding Property Flipping, the announcement says that, lenders need to take some special steps for borrowers who are using HECM for Purchase program on a new primary residence while retaining their existing home as rental property. Lenders will need proof of income on the part of the borrowers to: maintain the costs associated with the new home (like taxes or maintenance), satisfy the investment for the HECM transaction, and they should be able to continue making the mortgage payments and insurance payments on the existing mortgages.

The ML says this is to beat the practice called “buy and bail” where a home owner purchases a more affordable house to stop making payments on the previous mortgage.

The ML, on the topic of maximum claims calculation, says that the maximum claim amount will be used while determining the mortgage insurance premium (MIP) and the principal limit for FHA-insured mortgages. In the case of purchase mortgages, the maximum claim amount to be calculated as the minimum of all of the following, considered separately:

* Appraised value
* Selling price
* FHA’s set mortgage limit for single family residence.

On the topic of the counseling requirement, those people who want to use the HECM for purchase option will need to get counseling from HUD-approved agencies that have been approved to give reverse mortgage counseling.

The ML announces that the right of rescission will not be available for HECM for purchase transactions, unless the loan itself is reconcilable. For instance, if the mortgagor wants to finance a balloon payment, the three day right to rescission is applicable. The FHA encourages mortgage lenders to seek a counsel’s opinion in order to ensure compliance with applicable State or Federal Laws in all cases that involve right of rescission.

The HUD has also provided a new document showing some investment examples. The link to the document is here:

http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09-11mlatt.doc

All interested parties about the topic of reverse mortgages would do well to read this document carefully.