Today HUD published Mortgagee Letter 08-33 which establishes the HECM for purchase program. FHA insured HECMs can now be used to purchase a principle residence (1- to 4-family dwelling unit) with the loan proceeds as long as the FHA case number is assigned on or after January 1, 2009.
According to the ML, the Federal Housing Administration (FHA) defines “HECM for Purchase” as a real estate purchase where title to the property is transferred to the HECM mortgagor, which the mortgagor will occupy as a principal residence, and, at the time of closing, the HECM first and second liens will be the only liens against the property.
The ML is 5 pages long so I encourage everyone to read over it carefully. Below is a the section about property flipping:
Prospective mortgagors should be alert to efforts to coerce them into obtaining a reverse mortgage as part of a purchase contractual obligation, or purchasing a distressed home in need of substantial repairs but being sold at or above market rate.
As such, HECM lenders must take steps to ensure that: a) only current owners of record may sell properties that will be financed using FHA-insured mortgages; b) any resale of a property may not occur 90 or fewer days from the last sale to be eligible for FHA financing; and c) for resales that occur between 91 and 180 days where the new sales price exceeds 100% of the previous sales price, FHA will require additional documentation validating the property’s value. Lenders providing HECM financing for purchase transactions must comply with guidance provided in Mortgagee Letter 2006-14.
Its good to see a ML from HUD, hopefully the loan limit ML is next.