All Reverse Mortgage Company just informed me that after speaking with HUD’s Atlanta Home Ownership Center, HUD has posted new guidelines regarding the HECM for purchase that supersede Mortgagee Letter 2008-33.

The big question on everyone’s mind has been how is the benefit calculated for the HECM for purchase?  According to HUD’s new HECM for purchase FAQ:

How is the maximum claim amount and principal limit calculated?

For HECM purchase transactions only, The maximum claim amount will be the lesser of the appraised value, sales price or FHA mortgage limit for a one family residence. The principal limit is determined by multiplying the maximum claim amount by the principal limit factor corresponding to the age of the youngest mortgagor and the expected interest rate. This guidance replaces the policy guidance found in Mortgagee Letter 2008-33.

What this means is that if a senior is able to find a home for sale at a price less than the appraised value, the benefit amount will be calculated from the sales price and not the appraised value as previously reported.

To get this answer, ARMC worked with its borrower, a representative from Congress, and many different HUD representatives.  They posted the letters used and provide a better description of the details at the link below.

What remains to be seen is if HUD will issue a new Mortgagee Letter to clear this up.  I would be shocked if any lenders would take the FAQ on HUD’s website and use it as guidance over Mortgagee Letter 2008-33. Nice work ARMC.

Reverse Mortgage Purchase using “Appraised Value” … HUD Answers No