Today, the U.S. Department of Housing and Urban Development (HUD) published Mortgagee Letter 2009-11 to provide a compilation of guidance issued under ML 2008-33 and to address other aspects of the HECM for Purchase program. According to HUD’s statement, ML 09-11 supersedes ML 2008-33.
There have been loads of questions regarding the HECM for purchase and below are a few topics that ML 09-11 covers:
Property Flipping
If borrowers using the HECM for Purchase for a new primary residence choose to retain their existing home as a rental property, lenders must ensure that they have sufficient income to:
- Maintain the costs associated with the new home financed with the HECM for Purchase (ie: taxes, insurance, maintenance);
- Satisfy the monetary investment for the HECM for purchase transaction; and
- Continue to make the mortgage payment and tax and insurance payments on the existing mortgage.
The ML states the guidance is to prevent the practice known as “buy and bail” where the homebuyer purchases, for example, a more affordable dwelling with the intention to cease making payments on the previous mortgage.
Maximum Claim Calculation
According to ML 09-11, the maximum claim amount is used to determine the principal limit and mortgage insurance premium for FHA-insured mortgage transactions. For purchase mortgages only, the maximum claim amount will be the least of
- The appraised value;
- Sale price; or
- FHA mortgage limit for a one family residence.
Counseling
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 on all topics covered in this mortgagee letter and other HUD requirements and issuances.
Right of Rescission
In most cases the right of rescission will not be applicable to HECM for purchase transactions, unless there may be instances when the loan would be rescindable. For example, if the mortgagor intends to finance a balloon payment due under a land sale contract, the three day right of rescission would be applicable. FHA does not have purview over right of rescission requirements found in Regulation Z, 12 CFR Part 226. FHA strongly encourages lenders to seek an outside counsel’s opinion to assure compliance with all applicable Federal or State laws.
HUD also included a new document which shows required investment examples. These are just a few of the points covered in ML 09-11, it’s 7 pages long so I encourage everyone to read it over carefully.
