Reverse Home Mortgage Lenders, Massachusetts, Connecticut

HUD Issues HECM for Purchase Guidelines

-- HUD Aims for January 1^st Effective Date --

WASHINGTON, DC – [November 20, 2008] - National Reverse Mortgage Lenders Association announced today that the U.S. Department of Housing and Urban Development (HUD) has issued guidelines for the purchase of homes by seniors utilizing the FHA-insured Home Equity Conversion Mortgage (HECM) program.   Under amendments to the HECM program recently enacted as part of the Housing and Economic Recovery Act of 2008, qualifying buyers will be able to purchase new homes with reverse mortgages, thus avoiding taking on any monthly mortgage payments as part of the transaction.   The program will take effect on January 1^st, 2009.    

“The HECM for Purchase adds an interesting new option for anyone over 62 years old looking to relocate into a new home that can better fit their needs in years to come,” said Peter Bell, President of NRMLA.    “Proceeds from the sale of their former home can be combined with funds from a reverse mortgage on the new home, allowing the home purchase to be made without the future responsibility of monthly mortgage payments.”

The new guidelines for the HECM for Purchase program require:  

• HECM borrowers must occupy the property within 60 days from the date of closing. Lenders are required to ensure all outstanding or unpaid obligations incurred by the prospective mortgagor, in connection with the HECM transaction, are satisfied at closing.  
• Only properties where construction is completed are eligible.  
• Ineligible property types include: cooperative units; boarding houses; bed and breakfast establishments; existing manufactured homes built before June 15, 1976; and existing manufactured homes built after June 15, 1976 that fail to conform to the Manufactured Home Construction Safety Standards.
• At closing, the home buyer/HECM borrower must provide funds to cover the difference between the HECM principal limit and the sales price for the property, plus any HECM loan related fees that are not financed or offset by other allowable FHA funding sources. 
• Borrowers may not obtain a bridge loan (also known as “gap financing”) or engage in other interim financing methods to meet the monetary investment requirement or payment of closing costs needed to complete the purchase transaction.
• HUD-approved housing counseling agencies that have been approved to provide reverse mortgage counseling, must counsel those who anticipate using the HECM for Purchase option. 
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For the complete list of guidelines and provisions, please visit the NRMLA Web site at www.nrmlaonline.org. 

New Loan Limits

As part of the Housing & Economic Recovery Act of 2008, HUD recently approved a single national loan limit of $417,000 for federally insured HECM reverse mortgages which went in to effect on November 6^th. The new, higher lending limit will enable borrowers to obtain a greater benefit if their home value is higher than the previous HUD limit. Previously, the HECM program assigned different lending limits by county ranging from $200,160 in rural areas to $362,790 in the highest home value areas. Similarly, existing borrowers whose home value is greater than the new HUD limit may be able to increase their benefit by refinancing their reverse mortgage.

About Reverse Mortgages

A reverse mortgage is a unique loan that enables senior homeowners to convert part of the equity in their homes into tax-free income without having to sell the home, give up title, or take on a new monthly mortgage payment. Reverse mortgages are available to individuals 62 or older who own their home. Funds obtained from the reverse mortgage are tax-free.

Borrowers can choose to receive the reverse mortgage funds as a lump sum, monthly income (for up to life), or line of credit, or as a combination of monthly income and line of credit. No mortgage payments are due during the life of the loan.

Borrowers can use the funds anyway they wish – for home repairs and improvements, medical costs, in-home care, education, and supplemental retirement income. Borrowers make no monthly payments on a reverse mortgage during its term. The loan becomes repayable when the borrower sells the home or permanently moves out. In addition, the repayment amount can't exceed the value of the home.

Reverse mortgages are originated largely by private lenders. The most popular is the Home Equity Conversion Mortgage (HECM), which is insured by the Federal Housing Administration, an arm of the U.S. Department of Housing and Urban Development (HUD). More than 450,000 HECMs have been made since 1989.