Mandatory HUD Counseling and the new HECM for Purchase Program are two topics that have been significant to the reverse mortgage industry recently. Waves appear ready to reverberate again after HUD’s recent release of Mortgagee Letters 2009-10 and 2009-11 yesterday. These two letters concern HUD counseling and the HECM for purchase program respectively. Some important points surrounding the letters can be found below:
HUD Counseling
New requirements surrounding the mandatory HUD counseling include that lenders must provide a list of no fewer than ten counseling agencies to every client. Five must be local agencies within the senior’s local area or state. At least one must be within reasonable driving distance to provide the opportunity for in-person counseling if the borrower desires it. The last five must be the National Foundation for Credit Counseling, Money Management International, CCCS of Greater Atlanta, the AARP and the National Counsel of Aging. The counselor cannot assist the borrower in scheduling counseling or pressure them to complete it.
HUD counseling must now include an overview of the senior’s financial situation, including documentation of the senior’s budget. The counselor must evaluate and discuss any appropriate alternatives to a HECM with the senior. Space to record the method of payment for the counseling session has also been added to the HECM Counseling Certificate.
HECM for Purchase
The letter surrounding HECM for Purchase provides guidance to help prevent “buy and bail,” which involves the purchase of a more affordable home in order to cease making payments on the previous mortgage. One helpful correlary is that mortgagors may only have one principal residence at a time. Thus, those wishing to use the HECM for Purchase program to purchase a new principal residence must pay off the existing FHA-insured mortgage before the new HECM for Purchase mortgage can be approved.
All major property deficiencies must be repaired by the seller by closer. Borrowers cannot apply for gap financing.