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Reverse Mortgages
(not permitted in the MPDU Program)

MPDU Owners Are Not Permitted to Refinance an MPDU with a Reverse Mortgage

The reverse mortgage program is premised on the assumption that a housing unit 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, under the law:

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 what would be the appraised FMV if the MPDU were not under resale price controls.  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 resold to program participants at the contolled resale price.  Moreover, each time the MPDU is resold during the control period, the 30 year control period begins again.

If purchasers or owners of MPDUs were allowed to use a reverse mortgage that was underwritten using an assumed FMV, they would risk owing more on the MPDU when they try to sell it during the control period than they would 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 might have a FMV of $400,000 if it were not under resale price controls, the controlled resale price is $150,000.  The FMV would therefore never be realized unless the property goes to foreclosure.

Reverse mortgages are also not permitted for MPDUs on which controls have expired, because the MPDU owner will still owe shared profit to the County when the MPDU is sold.  If the MPDU covenants have been released, then the unit is no longer an MPDU and would be eligible for the reverse mortgage program.