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I was pleasantly surprised in November to see two things: One was a HUD mortgagee letter stating they would allow home purchases with a reverse mortgage.

Before this, refinancing the existing house was the only thing that a reverse loan could be used for.

But that's all changed. A reverse loan is now as functional as a regular loan, but the borrower does not have to repay the bank periodically. This is obviously a significant distinction to seniors.

Another part of the letter really threw me for a loop, in a very good way. HUD was allowing lenders to loan based upon the appraisal rather than the sale price. This was an amazing thing for me to read.

As it stands for reverse mortgage refinances, there are several different things the banks look at when determining loan amount, but the value of the home is number one.

When a reverse loan is used to actually buy a home the same would apply, except in this case the lower number between price and appraised worth would be the factor.

For a reverse mortgage purchase to be based upon value only sounded almost too good to be true.

Here's how it could play out. Say a borrower scrounges around and finds an amazing house really cheap. Its on the market for almost half of what it should be. In this circumstance, at closing the senior might not have to front anything out of pocket.

HUD is kind of old fashioned in their ways. Their regular loan programs are flexible and give some slack when it comes to credit, but they still want something from the senior. This something is the down payment.

It was all just a pleasant dream! The Dept. of Housing and Urban Development has seen the light and decided against continuing with this policy. Back to the old.

Its curious to me that HUD isn't faster in getting this information to us. I would expect multiple reviews by competent consultants before the final draft of these decisions becomes available, yet this isn't happening.

Not so, this particular letter was out no more than two months before revision.

So in conclusion, remember that the lower number between the price and the value will be what determines the reverse loan amount, when used for a home purchase.