Reverse Mortgages - Not Permitted in the MPDU Program

For the protection of MPDU owners, reverse mortgages are not permitted to be used to purchase or refinance a MPDU that is still under resale price controls.  The reverse mortgage program is premised on the assumption that a MPDU has a "fair market" value (FMV).  This fair market value is one factor used by the lender in the underwriting formula to determine the amount a purchaser is qualified to borrow.  The program also assumes that a property will be sold at some future date for a higher FMV. However:

MPDUs under the resale price control period do not have a fair market value (FMV).

Once again, MPDUs under the resale price control period do not have a fair market value FMV).

A MPDU under resale price controls can only be sold and resold for a controlled resale price that is substantially below the appraised FMV.  The resale price control period for new MPDUs is now 30 years.  This means that for at least 30 years, the MPDU may only be sold and resold to program participants at the contolled resale price.

If purchasers or owners of MPDUs were allowed to use a reverse mortgage that was underwritten using the FMV, they will risk owing more on the MPDU when they try to sell it during the control period than they will receive from the sale.  This will put these owners or their heirs in financial jeopardy since they will "owe more to the bank" than the property can be sold for.  They will be forced to cover this difference with their own funds. 

For example, although a MPDU may have a FMV of $400,000, the controlled resale price is $150,000.  While this provides the necessary protection and assurance to the lender to make the mortgage loan, the FMV will never be realized unless the property goes to foreclosure.

BE ADVISED: A reverse mortgages underwritten using the appraised FMV of the property may never be used to finance or refinance a MPDU under resale price controls.