HUD Clarifies HECM for Purchase Rules

In response to lenders' requests for additional guidance, the Department of Housing and Urban Development has published a new mortgagee letter that sets a maximum claim amount on the new HECM for Purchase product. The latest directive (ML 2009-11) says the max claim amount will be the lesser of either the home's appraised value, its selling price or the FHA loan limit. It also says the calculation applies to all one-to-four unit properties, and advises that neither the estimate of closing costs nor the initial mortgage insurance premium is to be used in determining the claim amount. HECM for Purchase, which was authorized by the Housing and Economic Recovery Act of 2008, is a form of reverse mortgage that allows seniors 62 or older to move down the housing ladder by selling one house and purchasing another while incurring only one set of closing costs. But the new memo makes it clear that borrowers can have only one principal residence. If borrowers intend to retain their existing house as a rental property, lenders are required to guard against "buy and bail" situations. In addition, major property deficiencies outlined in a previous mortgage letter — no running water, leaking roof, lack of heat and building code violations, to name a few — must be repaired prior to closing.