I would certainly – and for a second time – apply for a reverse mortgage immediately, but I know I’m ineligible. Why? Because the ground lease my condo apartment building has with the Battery Park City Authority (BPCA) does not satisfy a requirement that FHA imposes on condo and co-op applicants – and only on condo and co-op applicants — for reverse mortgages.
That condition is: to be eligible for an FHA reverse mortgage either (a) the lease agreement the Homeowners’ Association holds must be no less than 99 years and renewable or (b) the lease has a remaining term of not less than 50 years past the 100th birthday of the reverse-mortgage applicant.
Our ground lease is not automatically renewable and terminates in 2069. Since my 100th birthday will be in 2044, I’m not eligible for a reverse mortgage because our lease will run only 25 years (much less than 50) after I turn 100 years of age. For a Battery Park City resident to be eligible for a reverse mortgage on their condo or co-op, they would have to be at least 95 years of age today.
That’s the situation, Cliff. Unless the BPCA is willing to extend our lease and make it automatically renewable, no condo or co-op owner in Battery Park City under the age of 95 is eligible for a reverse mortgage.
You know, I bet the percent of outstanding reverse mortgages held by condo owners – as opposed to people in free-standing, individual homes – is infinitesimal. And that’s not because condo (and co-op) owners are not interested. Far from it.
I bet if condo (and co-op) owners nationwide were relieved of this bizarre and onerous requirement, the increase in applications for reverse mortgages would be much greater than the decrease the new regs you discuss will occasion. Far, far greater.
I’ve been trying to find data on the subject — I’m an economist and statistician so that kind of research is easy for me – to determine the exact percent of reverse-mortgage holders living in condos or co-ops, but had to put aside my research to deal with some other stuff. But, I’m getting back to it soon. I expect to find, as I said above, that there are very few.
Every time a reverse mortgage supplier calls me, I ask them if they’ve ever succeeded in getting a reverse mortgage for a co-op or condo owner. They say they’ll check their organizations records and get back to me. I never hear from them again.
I’m planning to become an activist on this issue – I’ve been in touch with a reporter for the local paper who is interested in the issue and I’m told a member of the local community board would like to work on the problem – because I see that I, and probably hundreds of thousands of other condo and co-op owners, will get relief only if political action is taken.
The FHA requirements for reverse mortgage applicants in condos and co-ops amount to discrimination against people living in the major cities where condos and co-ops are common and must be changed.
Firstly, let me congratulate you on your command of the requirements for condominiums situated on leased land. You are absolutely correct in your analysis and many reverse mortgage professionals with whom I talk do not know these guidelines this well. You’ve raised many different issues and to answer them all will take a bit, but I think you deserve the answers, even though they probably aren’t what you want to hear.
Firstly, you are correct that condominiums are a shrinking percentage of the total number of reverse mortgage loans done, not just condominiums on leased land (which the latter is actually not that common).
The reason that condos are a shrinking number of the reverse mortgages being done is that in 2010, HUD changed their condo guidelines to require that before any loan could be insured in any project, the entire project had to be approved.
Prior to that time, HUD had a process in place for “spot approvals” that would allow lenders to originate and FHA would insure up to a limited number of loans in any given project as long as it met a very minimal criteria.
When HUD eliminated the spot approval process, the number of loans eligible for condominium insurance for both forward and reverse mortgages dropped significantly.
We do close loans in condominium projects (not typically on leased land though I must admit) but only when the project is HUD approved or can be. We have had some projects that were on HUD’s list (you can check their list to see if your project is approved here HUD approved condo lookup), some that were not that we were able to get approved, some that were on their list that once we obtained the management questionnaire the approval was rescinded because it no longer met HUD’s guidelines and some that HUD just would not approve.
But all in all, very few of the projects from which borrowers contact us are on the list and our experience is that only about 30% of the projects for which we gather the information actually qualify for HUD approval. I have not had the opportunity to delve into HUD’s foreclosure statistics and therefore I really cannot comment on their move to tighten the guidelines.
I have been in the mortgage banking industry for over 37 years now and have always heard that condominiums represent an unusually large risk to HUD and other investors due to the fact that they drop more quickly in value and that potential problems within the project adds layers of risk to the loan that an otherwise perfectly acceptable borrower would not present on a single family detached residence.
Construction defects, high levels of rental properties that lower owner-occupant values, lawsuits, poor management, inadequate insurance and reserves against losses are all issues that have befallen some condo projects that have hurt values and marketability of the units, over all of which individual unit owners may have no control whatsoever.
Again, I’ve not seen the numbers, but the losses that condos accounted for were said to far exceed others when compared to single family detached homes (comparatively speaking) and thus the reason for HUD’s restrictions.
Maybe this is where your background in research would help you to either understand or shed light on an injustice – determining if there really is a loss issue for HUD when comparing condominiums to single family detached homes based on the numbers of loans ad dollars insured for all property types.
At any rate, we come to the leased land dilemma. Here again I cannot honestly tell you if the marketability issue is something HUD has an unreasonable fear of or if they have actually suffered losses and their guidelines are a result of those experiences.
The premise though is that if you have leased land and the lease does not have an automatic renewal, something happens to the land and the improvements thereon once the lease expires that could present an unacceptable risk. When you have a mortgage that has no specific termination date, the loan can go as long as the mortgagor continues to live in the property.
Personally, I think that requiring 50 years left on the term beyond the borrowers’ 100th birthday is a bit much but HUD is not just looking at making sure that you can always occupy the property and will not ever be forced to move at lease expiration, but also for the standpoint of protecting the insurance fund.
They do not want to own the units in projects that have a limited term left on the lease before the land reverts to the original lessor as that may make those units unmarketable later. So if they did not use the 50 year term, what term on a non-renewable lease would protect HUD and always ensure a marketable property? Hard to say.
Then there is the broader issue of the condo and co-op that is not on leased land (and I would agree with you that this is a far more prevalent situation with condos, with co-op’s I do not have the experience with co-op’s to know what is the most prevalent method land ownership).
While I cannot say anything for certain, I have heard rumor that HUD is considering the possibility of another spot approval process. I don’t know if it was resurrected if it would be as it was, if it would be more or less relaxed or even if it is nothing but a rumor at this point.
I do know that anything you or anyone else does to help this become a reality would help many condo homeowners, both for reverse and forward loans. As for co-op’s, the legislation was passed to allow FHA to insure loans on co-op’s in 2008 and it was announced that they would soon be coming at that time…but they never got here!
I do not know what the hold-up is or why we never hear anything from HUD on this segment of the market anymore but there are many borrowers who would love to see this finally come out. I’m sure many owners would appreciate your advocacy in this area as well.
In short, I for one welcome all individuals who become activists on this program for the benefit of the senior borrower. I salute you and your efforts and sincerely hope you can find the right contact(s) to break up some of the log jams that are keeping all qualified borrowers from being able to access the program.