Answer: Yes, starting January 1, 2009

In response to the new FHA HECM Reverse Mortgage For Purchase program, HUD has compiled a list of 25 frequently asked questions.  Here are our favorite 14 questions and answers from the 25 HUD has on their website:

Home Equity Conversion Mortgage for Purchase
Frequently Asked Questions

What is HECM for Purchase?
HECM for Purchase allows seniors, age 62 or older, to purchase a new principal residence using loan proceeds from the reverse mortgage.

What is the purpose of the program?
The program was designed to allow seniors to purchase a new principal residence and obtain a reverse mortgage within a single transaction by eliminating the need for a second closing.  The program was also designed to enable senior homeowners to relocate to other geographical areas to be closer to family members or downsize to homes that meet their physical needs, i.e., handrails, one level properties, ramps, wider doorways, etc.

What activities can be performed prior to January 1, 2009?
Lenders may take application but they may not process or perform services that would result in a charge to a prospective mortgagor.

Can lenders refer clients, who are interested in a HECM for purchase transaction, to a HUD-approved housing counseling agency before January 1, 2009?
No. Counseling on HECM for purchase transactions will become available January 1, 2009.  Counselors need time to adjust to the new provisions

What property types are eligible?
Existing one-to-four unit properties where construction has been completed and the property is habitable.  See ML 2007-06

Can a HECM for purchase be used to satisfy outstanding payment obligations associated with a land contract?
Yes, if the property will be used as collateral for the HECM and the mortgage will be held in fee simple, or on a leasehold under a lease for not less than 99 years which is renewable, or under a lease having the remaining period of not less than 50 years beyond the date of the 100th birthday of the youngest mortgagor.

Can a lender take application on a property that is under construction and not habitable?
No.  The lender may only take application once the Certificate of Occupancy or its equivalent has been issued.

Are gifts an acceptable source of funding?
No.  Prospective mortgagors may only use their own money or money obtained from the sale of assets.  FHA prohibits the use of loan discount points, interest rate buy downs, closing cost assistance, builder incentives, gifts or personal property given by the seller or any other party.

What would be an “allowable FHA funding source” for gap financing of the equity portion?
A withdrawal from the mortgagor’s savings or retirement account would be an acceptable funding source.

Can prospective mortgagors apply credit card cash advances towards the required monetary investment or closing costs?
No.  This would be a violation of 24 Code of Federal Regulations 206.32(a), which requires all outstanding obligations connected to the HECM transaction, purchase or otherwise, to be satisfied prior to or on the date of closing.

Are seller concessions allowed?
No.  Seller concessions are applicable to forward mortgages only.

Can prospective mortgagors obtain a secured or non-secured loan from another asset (i.e., car, home equity line of credit, or investment property or second home) to satisfy the monetary investment or closing costs?
No. Consistent with existing policy, bridge loans and other interim financing methods associated with HECM transactions are prohibited, unless the unpaid or outstanding obligation can be satisfied prior to or on the day of closing.

Under what conditions may a senior cancel the purchase transaction?
The senior may decide to cancel the purchase transaction at any time prior to the date of closing.  If the senior decides to cancel the transaction, he/she must notify all parties in writing.  Where earnest money has been provided, the senior should review the sales contract to determine if the earnest money is refundable. The Federal Reserve Board of Governors should be contacted for right of rescission and Truth in Lending Act guidance.

Can the HECM mortgage participate in a rent back/leaseback agreement with the seller?
No.  When purchasing a new principal residence, the HECM mortgagor has 60 days to occupy the home.  Unlike a forward mortgage, there is an increased risk to FHA when the home is not occupied by the HECM mortgagor.  Prior to closing, the HECM mortgagor and seller should agree to a date for physical occupancy of the property and the lender should confirm occupancy prior to their submission of the case binder to the local HOC for endorsement.

If you are a senior who is currently looking to purchase a house, it is entirely possible that the new FHA HECM for Purchase reverse mortgage program is a viable option!

See all 25 FAQ’s on HUD’s Website.

See HUD’s official Mortgagee Letter about the FHA HECM Purchase program.

Quick Mortgage News Update

Freddie Mac & Fannie Mae temporarily halted foreclosure sales and evictions. Fannie Mae, issued Lender Letter 04-08 announcing that they are “halting all foreclosure sales on occupied single-family properties that are scheduled to occur from November 26, 2008 through January 9, 2009. This temporary halt also applies to eviction lockouts of occupied single-family properties.”

Fannie & Freddie are working with FHFA, to implement their streamlined loan modification program by December 15, 2008.

The simple answer is… 62.

But wait, there is more to the story.

The are strict age requirements to the FHA/HECM (Home Equity Conversion Mortgage) program and the age requirements state that each borrower be at least 62 years of age.

It seems that quite often, we speak with people where one person is over age 62, but their spouse is not.  What happens in cases where both people are not over age 62 — does this mean that they can not participate in the FHA/HECM program?

It depends on what choices they make.

Possible Choice #1

Since one of the seniors is not yet over the age of 62, this means that the couple will not qualify for the reverse mortgage program and need to wait until both people are over age 62.

Possible Choice #2

Since one of the seniors is not yet over the age of 62, the spouse who is taken off title, which allows the spouse who is over 62 to qualify alone for the FHA/HECM program.

Ramifications Depending On Your Choice

If you choose #1, it is simple.

If you choose #2, be aware of the following possible scenarios:

Assume for a moment that the younger spouse who was taken off title is the first spouse to pass away. Since this younger spouse wasn’t an owner of the property, their death will not impact the program that is in place and the surviving spouse will continue living in the property with no changes to their reverse mortgage.

Now, let’s pretend that the older spouse who was on title and participating in the FHA/HECM program is the first spouse to pass away. If this were to happen, the loan then becomes due and in this case, the loan would need to be repaid in full.

So, in order to remedy this situation - the surviving spouse would need to do one of the following:

1. Sell the home and move out
2. Pay off the loan balance with savings or a regular “forward mortgage”
3. Obtain a reverse mortgage (assuming that they are now over the age of 62 and meet the criteria)

If you are thinking about a FHA-insured reverse mortgage and either you or your spouse is not yet over the age of 62, this is only one of the many choices you will be faced with and need to be aware what impact your choices will have.

The FHA/HECM program is helping many seniors enjoy retirement  - but it can also be a burden in the future if you don’t plan according to the choices you make!

• You are age 70.
• You live alone.
• You are living on social security and a small pension.
• You have never used the Internet.
• You have lived in your home for 25 years.
• You have recently had some unexpected expenses arise and you find yourself not being able to make your mortgage payment each month.
• You are currently at least 30 days late on your mortgage and don’t know how you are going to be able to afford to stay in your home.

Now imagine being in this situation and then getting a call from your lender offering a possible solution to your situation — the FHA reverse mortgage program because your situation had been “discovered” by a software package used by your lender.

Expect to see this happen in the near future thanks to software by First American.

What % of the estimated 684,000 people aged 50 and older who are currently behind on their mortgage (and that is an old statistic) will the FHA reverse mortgage program help?

I don’t know for sure, but if it helped even 10% of them, that is almost 65,000 seniors who will be able to stay in their home and not have to worry about making another mortgage payment.

I was at a neighbors house and he was having a “neighborhood get-together” with a handful of other families. We live in a newly built neighborhood and new people are moving in all the time, so I was meeting a few of our neighbors for the first time. One of them asked what I did for a living and when I answered “oh, Tammy and I are mortgage folks”, it was the trigger where the twilight zone theme started playing in my mind.

If you lived in Arizona in 2005 and attended a neighborhood party, what was the main topic that seemed to dominate every conversation?

In 2005, the main topic that dominated neighborhood conversations all around Arizona seemed to be the recent run-up in home values and “could you believe that so-and-so paid how much for that house?”

Fast forward to 2008.

The main topic of our neighborhood party today?

“Can you believe what so-and-so’s bank did to modify their loan? Their new house payment is only going to be __________ for the next 5 years!”

I left the party scratching my head… I mean - it was full of all kinds of stories about people getting their loan modified. You almost felt out of place there if you hadn’t had yours modified!

I would estimate that a full 25% of all of the people there had already had their loan modified and after the stories that were being told, I wouldn’t be surprised if the other 75% wasn’t far behind them in getting the process started.

Are loan modifications real?

Yes. Yes, they are.

And they apparently are only going to get more popular in coming months if/when the federal government begins to encourage lenders to modify people’s loans.

This morning we were live on the radio with KTAR superstar Darrell Ankarlo talking about the 700 billion bailout and what it means to people who are having trouble making their mortgage payment. The discussion centered around “what should I do if I am having trouble making my mortgage payment?”

My general answer was “keep talking to your lender about what your options are because the rules are changing almost daily about what lenders are and aren’t willing to do.  If you spoke to your lender last week and they told you that they couldn’t help you, call back again this week.  And next week.  And the week after that.”

Why?

Because as I said on the air – the rules are changing and the federal government may soon be coming out with packages that will incentivize lenders to get better at working with borrowers.

Arizona Mortgage Rates for November 14, 2008

The new standard Good Faith Estimate is part of a RESPA Reform package that has been in the works for years.  Before the announcement, HUD reviewed approximately 12,000 comments and in considering these comments made changes to what was going to be a 4 page Good Faith Estimate.

According to Brian Montgomery, HUD’s Assistant Secretary of Housing:

“We have carefully considered the concerns expressed from every corner of the mortgage market in developing this rule. I am convinced that we successfully balanced the needs of consumers with those in the business of homeownership. None of us can lose sight of the fact that millions of Americans simply don’t understand all the fine print of their mortgages and this, in many respects, is at the heart of today’s mortgage crisis.”

Personally? I think it is a good idea. It will help standardize information that the consumer is getting from different lenders so that the consumer can make an informed choice and more easily match up the Good Faith Estimate with the Final HUD-1.

See the new Good Faith Estimate Form.

See the new HUD-1 Settlement Statement Form.

Here is something that I bet you didn’t know — according to a data provider that I use, there are currently 499 seniors in Arizona who are over the age of 62, have a loan-to-value ratio of 60% or less and they are currently late on their mortgage payment by either 30, 60 or 90 days.

When digging a little deeper into the “senior debt problems” that we have in our country, you don’ t have to look very far to see that credit card and bankruptcies among the senior population is rising.  According to the National Consumer Law Center:

An increasing number of older consumers are experiencing problems with debt, often by using credit cards to pay for groceries, prescription drugs, major home repairs, loans to children or grandchildren, and other necessities.  The average credit card debt of Americans over 65 increased by 89 percent between 1992 and 2001, from $2,143 to $4,041.  Elders between 65 and 69 years old saw the most staggering rise in credit card debt—217 percent— to an average of $5,844.1  One study of individuals who file chapter 7 bankruptcy found that seniors (65 or older) on average have nearly four times as much credit card debt as filers under the age of 25.

So.

If you are a senior living in Arizona and are currently late on your mortgage payment, be aware that having good credit is NOT one of the criteria for qualifying for an FHA-insured reverse mortgage.

Is the FHA reverse mortgage program right for you?

If you are late on your mortgage payments, are over age 62 and have equity in your house… It just might be.

Here is an parahprased list of the top 10 things HUD wants seniors to know about the HECM Reverse Mortgage program:

Top Ten Things to Know if You’re Interested in a Reverse Mortgage

1. What is a reverse mortgage?

A reverse mortgage is a type of FHA-insured loan that allows seniors to turn their home equity into cash.  The equity can be paid to you in various ways (a lump sum, in payments or a line of credit) and you don’t have to pay it back until you no longer live in the home as your principal residence.

FHA’s reverse mortgage program provides these benefits and is also federally-insured so you won’t have to worry about any bank failures impacting your payments.

2. Can I qualify for a HUD reverse mortgage?

The FHA reverse mortgage program requires that you live in your home, have equity in your home and are age 62 or older.  Credit scores, income or assets are not taken into account when qualifying for a reverse mortgage. Prior to closing, you will also need to attend a counselling session with an FHA approved counselor (aproximately an hour) who will be available to answer any questions you have about a reverse mortgage.
3. Can I apply if I didn’t buy my present house with FHA mortgage insurance?

Yes. It doesn’t matter what kind of mortgage you currently have on the house - or no mortgage at all.
4. What types of homes are eligible?

First, you must live in the property as your primary residence.  Second, your home must be a single family dwelling or a two-to-four unit property. Townhouses, detached homes, units in condominiums and some manufactured homes are eligible. Condominiums must be FHA-approved. It is possible for individual condominiums units to qualify under the Spot Loan program.

5. What’s the difference between a reverse mortgage and a bank home equity loan?

In order to qualify for a home equity loan, you will need to have sufficient income, assets and credit scores.  With a reverse mortgage, you can qualify as long as you are 62 or older, live in the property and have significant equity in the property.

If you select the “line of credit” option with a reverse mortgage, both a reverse mortgage and a home equity line of credit will allow you access to your money in much of the same way.

6. Can the lender take my home away if I outlive the loan?

No! You do not need to repay the loan as long as you or one of the borrowers continues to live in the house and keeps the taxes and insurance current. You can never owe more than your home’s value.

7. Will I still have an estate that I can leave to my heirs?

When you sell your home or no longer use it for your primary residence, you or your estate will repay the cash you received from the reverse mortgage, plus interest and other fees, to the lender. The remaining equity in your home, if any, belongs to you or to your heirs. None of your other assets will be affected by HUD’s reverse mortgage loan. This debt will never be passed along to the estate or heirs.

8. How much money can I get from my home?

The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home or FHA’s mortgage limits for your area, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow.

9. Should I use an estate planning service to find a reverse mortgage?

HUD does NOT recommend using an estate planning service, or any service that charges a fee just for referring a borrower to a lender! HUD provides this information without cost, and HUD-approved housing counseling agencies are available for free, or at minimal cost, to provide information, counseling, and free referral to a list of HUD-approved lenders.

In order to get an FHA-insured reverse mortgage, you will need to work with an FHA approved lender and counselor.  No estate planning services should be needed.

10. How do I receive my payments?

There are five options to receive your money. The most popular choices are probably “tenure” and “line of credit” and the least popular is “lump sum” because getting a lump sum can often lead to a loss of medicaid eligibility.

The five options are:

1. Tenure - equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
2. Term - equal monthly payments for a fixed period of months selected.
3. Line of Credit - unscheduled payments or in installments, at times and in amounts of borrower’s choosing until the line of credit is exhausted.
4. Modified Tenure - combination of line of credit with monthly payments for as long as the borrower remains in the home.
5. Modified Term - combination of line of credit with monthly payments for a fixed period of months selected by the borrower.

Conforming loans are probably the “most popular” option for people with decent credit, a job and a “normal” house because in order to get a conforming loan, you need all three.  If one of the three criteria changes (credit, employment, loan amount) then you probably will choose a different type of loan for financing such as FHA, Jumbo, sub-prime or handful of other types of loans.

Today it was released that the 2009 Conforming Loan Limit is going to remain the same as it has been since 2006 — $417,000 for a 1 unit, single family residence.  The loan limits for 2, 3 and 4 unit residences also stayed the same as they had been since 2006.

• 1-unit properties : $417,000
• 2-unit properties : $533,850
• 3-unit properties : $645,300
• 4-unit properties : $801,950

Now for the catch:

The maximum conforming loan limits don’t apply to areas that have been named “high cost” by the government.

There are 59 designated high-cost regions in the U.S. and most of them are in California.

For everyone in Arizona, the 2009 conforming loan limit is $417,000.

One question we got recently made us scratch our head…

“So how is it that Salt Lake is considered a high-cost area and Scottsdale isn’t?”