Purchase Reverse Mortgage, Sellers and Builders Need Education

HUD put out a Mortgagee Letter in October of 2008 in which they outlined a method by which they were going to calculate benefits under the purchase reverse mortgage program.  Later, they indicated that they were going to further clarify that Mortgagee Letter and the HUD Website does in fact clarify the fact that HUD will use the lesser of the Principal Lending Limit, the Appraised Value or the Sales Price to determine the borrowers’ benefits under the HECM for Purchase program, even though the Mortgagee Letter has yet to be released.  However, there is a purchase program available today utilizing the more strict interpretation that many lenders and builders have virtually eliminated from the realm of possibility when selling their new homes or real estate owned, simply due to the lack of education!

I know that there are those reading now that are saying to themselves, there is no way in today’s market that any builder would miss out on legitimate sales.  But we have had two instances of it already and solely due to the builder not being aware of the manner in which the purchase reverse mortgage works and their desire, for whatever reason, to direct all business through their in-house lender. 

One of our borrowers asked us to contact the sales office on his behalf and we gladly did so. To our surprise, they told us the same thing, that if the borrower could not be approved through their in-house lender, they would not accept an offer.  We offered to go to the tract, to the builder or to whomever they wished and explain the HUD program to them and why this or any senior borrower’s offer who qualified was valid and it was to their benefit to accept his full-price offer.  They declined our offer. 

Now there can only be one of a relatively few reasons why a builder would not want to sell his home to a qualified senior borrower who wants to utilize a reverse mortgage:

1. He didn’t really want to sell the house in the first place;
2. He did not want to lose the income he would make on the loan from his in-house lender;
3. There was too much fear of the unknown

I have to rule out #1.  Most builders build their homes to sell them.  There is a carrying cost for every month the completed home stays in inventory and I have never met a builder yet who just decided not to sell the homes in his tract to his own detriment.

#2 is out for the simple fact that the builder told the borrower that he could get his own lender as well as also apply with the builders’ in-house lender.  He said the borrower was free to go with his own lender, provided his lender could also approve the purchaser.  Then they would know they had a bona-fide purchaser.

That leaves us with #3.  There was too much fear of the unknown and the only way to alleviate those fears is with education.  For instance, builders want to be sure they have a real buyer and that there won’t be surprises down the road.  Most aren’t aware that with the HUD/FHA HECM for purchase program, there is no income and almost no credit qualification.

It is quick and easy to determine if the borrower has the necessary down payment requirement by running the Purchase Reverse Mortgage Calculator and looking at the borrower’s bank statements. A quick credit report determines that the borrower is not in bankruptcy and after that, there is no later concern that the borrower may lose his job, that ratios may not be in line, that the underwriter may not like an explanation for a credit item, etc.  That just doesn’t happen on reverse mortgages. 

These builders are already selling their homes with FHA financing so they had already been seeing FHA appraisals and under the HECM for purchase program, there can be no builder concessions.  This is another reason builders should be jumping up and down to sell to these borrowers utilizing these loans.

We had a similar situation on a property owned by a bank but when we did a presentation for the bank, they jumped at the opportunity to sell to the senior borrower.  They made the decision there and then to amend their policy that purchasers had to also be bank approved, unless purchasing with a reverse mortgage.

No concessions, borrowers who are almost automatically approved providing they are aged 62 or over and meet the most miniscule requirements and have a substantial down payment - these are the types of borrowers every builder should be praying for.  With just a little education and an open mind, senior HECM for Purchase borrowers could be the builder’s best friend!

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