March 27, 2009MORTGAGEE LETTER 2009-11
TO:ALL FHA-APPROVED MORTGAGEES
ALL HUD-APPROVED HOUSING COUNSELING AGENCIES
SUBJECT:HECM for Purchase Program
On October 20, 2008, the Federal Housing Administration (FHA) published Mortgagee Letter (ML) , announcing the Home Equity Conversion Mortgage (HECM) for Purchase program which allows qualifying seniors to use HECM proceeds for the purchase of a new principal residence. Since its publication, the reverse mortgage industry has sought additional guidance concerning HECM purchase transactions. This ML contains a compilation of guidance issued under ML 2008-33 and new guidance for the HECM for Purchase program and, therefore, supersedes ML 2008-33.
The Housing and Economic Recovery Act of 2008 (HERA) provides HECM mortgagors the opportunity to purchase a new principal residence with HECM loan proceeds. Section 2122(a)(9) of HERA amends section 255 of the National Housing Act to authorize the Department of Housing and Urban Development (HUD) to insure HECMs used for the purchase of a 1 to 4 family dwelling unit. Accordingly, eligible mortgagors now have the opportunity to purchase a principal residence with HECM loan proceeds. HECM for Purchase transactions, for which the FHA case number is assigned on or after the date of this ML, must satisfy existing HECM program requirements and the provisions of this 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; the mortgagor will occupy the property as a principal residence; and, at the time of closing, the HECM first and second liens will be the only liens against the property. HECM mortgagors must occupy the property within 60 days from the date of closing. Lenders are required to ensure all outstanding or unpaid obligations incurred by the prospective mortgagor, in connection with the HECM transaction, are satisfied at closing.
In accordance with regulatory requirements found at 24 CFR 206.3, HECM mortgagors may have only one principal residence at any one time. Current HECM mortgagors that plan to sell their existing residence and use the HECM for purchase program to obtain a new principal residence must payoff the existing FHA-insured mortgage before the HECM for Purchase mortgage can be insured.
When prospective mortgagors under the HECM for Purchase Program intend to retain their existing home as a rental property, lenders must ensure they have sufficient income to:
maintain the costs associated with the new home financed with the HECM for Purchase