It seems that HUD is finally ready to authorize HECM reverse mortgage for Co-Ops. According to one source, “it has redrafted a mortgagee letter that would permit HECMs on co-ops and is awaiting final approval.”

It was initially expected that HECM reverse mortgages would be available to co-op owners by the end of 2008, but delays have begotten more delays, and here we are well into 2010. [Admittedly, HUD has had its hands full managing the housing crisis, but even so!]. In the meantime, angry homeowners have been writing to Congress and to newspaper columnists, trying to get the timetable pushed forward: “Can you believe…Washington’s ridiculous delay in officially authorizing reverse mortgages for co-ops? So many senior citizens have been misled and hurt by this.”

Currently, owners of condominiums and other forms of cooperative housing that otherwise would qualify for reverse mortgages have very few options. They can go through private lenders, but these mortgages are not insured by the FHA and tend to be more expensive and carry higher interest rates. Reputedly, there is at least one reverse mortgage lender that offers HECM reverse mortgages on coops, but its terms and loan limits are more restrictive than with HECMs on conventional properties.

With full FHA approval, lenders could presumably be more aggressive in offering reverse mortgages on coops. Previously, lenders were put off from doing so because of uncertainty over the implications over a co-owner defaulting on a primary mortgage as well as difficulty in appraising the properties (which is required to calculate the maximum loan amount). As one columnist explained to an exasperated homeowner: “lenders are reluctant to allow you to take equity out of your place through a reverse mortgage when your neighbor — who, like you, contributes to the upkeep of the overall building — might default on his mortgage at any time?”

Even if the FHA gives the go-ahead, co-op owners must first solicit the approval of the building administrator. According to an insider, such requests will be rebuffed “maybe 20 percent of the time.” Still, this would represent an improvement over the current situation.