The Department of Housing and Urban Development yesterday published Mortgagee Letters 2009-10 and 2009-11 (Attachment) to clarify its policies on counseling and the new HECM for Purchase program.

ML 2009-10 reiterates HUD’s policies on HECM counseling, and adds several new requirements. Highlights from ML 2009-10 include:

• A reiteration that lenders are strictly prohibited from assisting a senior in scheduling counseling; borrowers are not to be pressured in any way and must contact a counseling agency at their own pace.
• Lenders must now provide a list of no fewer that 10 counseling agencies to every client, including 5 local agencies that are within the senior’s local area and/or state, with at least one agency within reasonable driving distance in order to provide face-to-face counseling if the senior so elects.
• In addition to the 5 local agencies, the other 5 agencies include National Foundation for Credit Counseling, Money Management International, CCCS of Greater Atlanta and the National Council on Aging and the AARP; in ML 2009-10, HUD provides toll-free numbers for these 5 agencies.
• HECM counselors must review a senior’s unique financial situation during the counseling session; the counselor must document the senior’s budget based on financial information provided by the senior (such as income, assets, debts, monthly expenses); this budget analysis, required by section 255 of the National Housing Act, mandates that the counselor evaluate and discuss with the senior any appropriate alternatives to a HECM loan.
• HUD revised the HECM Counselling Certificate to provide a space to record the method of payment for the counseling session, either “Upfront Fee for Counseling Session” or “Financed Fee for Counseling Session”, as well as a box to check if the fee has been waived.

While ML 2009-11 replaces the prior HECM for Purchase Mortgagee Letter, ML 2008-33, some of the provisions of ML 2008-33 are included in the new Mortgagee Letter 2009-11. Highlights from ML 2009-11 include:

• With regard to HECM for Purchase transactions, the maximum claim amount will be the lesser of: 1) the appraised value of the home; 2) sale price of the home; or 3) the HECM “loan limit”.
• 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.
• HUD also provides guidance to prevent the practice known as “buy and bail” where the homebuyer purchases a more affordable home with the intention to cease making payments on the previous mortgage.
• The monetary investment required may be met through the use of funding sources approved under HUD Handbook 4155.1, REV-5, section 2-10, except that (i) sweat equity, (ii) trade equity, (iii) rent credit or cash from the following parties may notbe used: (a) a seller or any other person or entity that financially benefits from the transaction, or (b) any third party or entity that is reimbursed, directly or indirectly, by the seller or any other person or entity that financially benefits from the transaction; however, it appears that certain gift funds from acceptable sources, such as a borrower’s relative, may be allowed.
• If a property has major property deficiencies (as outlined in ML 2009-11), all repairs of such deficiencies must be completed by the seller prior to closing.
• Lenders must examine HUD’s Limited Denial of Participation List (LDP) and the General Services Administration’s (GSA) Excluded Parties List System to determine whether the seller, real estate agent, builder, or other parties involved in the transaction, appears on either list. The reverse mortgage will not be eligible for mortgage insurance if the name of any party to the transaction appears on either list.
• Borrowers cannot obtain "gap" financing, if there are not enough funds available to purchase the new home outright. This restriction includes subordinate liens, personal loans, cash withdrawals from credit cards, seller financing and any other lending commitment that cannot be satisfied at closing.
• With ML 2009-11, HUD included an Attachment showing several examples of the calculation of the required monetary investment that the senior must make in HECM for Purchase transactions.

If you have any questions, please email me at dhicks@dworbell.com.

Darryl Hicks, Vice President
NRMLA