2/25/2009 - Official $625,000 Reverse Mortgage Loan Limit

Mortgagee Letter 2009-07 Raises Limits to $625,500

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Implementing the New $625,500 HECM Loan Limit

As most NRMLA members know, the economic stimulus bill signed into law by President Obama today raises the single national loan limit for HECMs to 150% of the Freddie Mac loan limit. Currently, that would create a HECM limit of $625,500. This is the direct result of a successful joint effort by NRMLA and AARP to obtain this higher loan limit. Under this new law, the higher limit is only applicable for loans made during the balance of 2009. We must go back to Congress to get the higher loan limit extended beyond this year.

Please understand that HUD must first issue a Mortgagee Letter implementing the new loan limit before it becomes operational. We have been discussing the timing for issuing this Mortgagee Letter with the Department and it is still unclear how long it will take to get it out, due to a few considerations.

First of all, a higher loan limit means that there are more loans that do not have the "cushion" of additional value beyond the maximum claim amount. For example, if a home is valued at $630,000 and the loan limit is $417,000, FHA has the benefit of $213,000 in additional value that could help prevent it from incurring any loss if a claim is paid on the loan. With the new higher limit of $625,500, the "cushion" on that loan would only be $4,500. Under the prior administration, the Office of Management & Budget, which is part of the White House, would have required a "risk review" and perhaps an upward adjustment in the MIP, to compensate for the higher degree of risk in the program. It is unclear yet whether the new administration will require a similar risk review and MIP adjustment.

Secondly, there is some concern about HECM borrowers who recently refinanced into a loan with the $417,000 limit, being "churned" into a refinance under the new limit and incurring the costs all over again. While the "streamlined refi," option could be utilized to lower the upfront MIP, there is some concern about making a home owner who has just paid an origination fee of $6,000 within the past few months to refinance at $417,000, incur that same cost all over again.

It is unclear, from both a legal and practical standpoint, whether or not HUD can place further origination fee limitations on HECM transactions, but it is a topic of discussion.
As always, NRMLA stays in close contact with our colleagues at HUD and will keep you apprised of developments regarding implementation of the new law as we receive information.

Peter H. Bell
President (reversemortgage.org)

NEWS! 02/12/2009 - Stimulus Bill Compromise Includes Higher HECM Loan Limit

NRMLA is pleased to announce that we have learned that the compromise package emerging from the House-Senate conference committee includes the House language setting the HECM loan limit at 150% of the Freddie Mac limit, which would put it at $625,500 -- for the balance of 2009 only. (Congress would have to act on it again before this year is out to extend it beyond '09.) 

The conference report must still be voted on separately by the House and the Senate, so it is not yet entirely final. The House adopted a non-binding motion on Tuesday that directs the conference report be posted on the Internet for 48 hours before the House votes. That would put the House floor vote the evening of Feb. 14, at the earliest, if the conference report is posted today.

Once both houses of Congress approve the conference report, it will be sent to President Obama for his signature. After the President signs the bill, HUD will have to issue a Mortgagee Letter to implement the change. From our previous experience, we have learned that there is no telling exactly how long it will take for them to get this done, but with the temporary nature of this provision, I hope that they will act expeditiously. We are still waiting to verify that this is correct by seeing the actual conference report.

-Peter H. Bell, President

What does the Reverse Mortgage increase do for you?

What’s in a Number?  That really depends on what that number stands for.  When you talk about Economic Stimulus Plans, a Million Dollars is a mere pittance, a Billion Dollars is a very poor start, and a Trillion Dollars is not even going to cover where it looks like we’re headed after you add the interest on to the current House or Senate Bills. 

However, there is a provision in the House Bill, H. R. 1, the American Recovery and Reinvestment Act of 2009, to raise the government reverse mortgage limit on the Home Equity Conversion Mortgage (HECM or “Heck-um”).  The limits were just increased from county to county limits in July of 2008 to a nationwide limit of $417,000, but that increase did not even take effect until Mortgagee Letter 2008-35 came out on November 6, 2008. 

Prior to that time, the limit in all but a few exception counties in places like Hawaii and Alaska had limits of $362,790 or less.  The national limit of $417,000 helped many senior homeowners, especially those in counties where limits were lower than $362,790 and the value of the property exceeded the old HUD Lending Limit for their area.

If passed without exception to the proposed HECM limit, the 2009 Bill that was passed in the House of Representatives would raise the HECM limit to $625,500.  It is interesting to note that some Senators thought this is what they did in the 2008 Legislation.  Barbara Boxer and Diane Feinstein, the two Senators from California, both sent out correspondence with different limits after the 2008 Bill passed, Ms. Boxer stating that the new limit then was $625,500 and Ms. Feinstein correctly stating the new HUD limit of $417,000.  The move to $417,000 meant quite a bit to senior homeowners with properties worth $417,000 or more. 

The table below shows a comparison of the amount a single borrower would receive, after normal closing costs for a state like California, at various ages for homes valued at the maximum lending limit (these numbers are also accurate for homes exceeding the appraised value shown but does not include the additional costs some states like Florida would encounter based on county and state mortgage taxes).  These are estimates, exact quotes require birthdates of borrowers.

Please note that the difference for what the borrower receives at the HUD limit of $362,790 to $417,000 in some cases is only a little over $30,000 going up to just over $46,000 with the limit increase of 2008.  This of course assumes the borrower was already eligible for the maximum limit of $362,790, if the borrower was in the lower limits then the move to $417,000 made a much bigger impact for that borrower. 

But now if you go over to the $625,500 limit, a 62 year old borrower will receive another $121,000 over the $417,000 limit, a 74 year old borrower would receive another $140,000 and at the top of the table, there is a difference of more than $142,000. 

Where this would be especially beneficial would be with senior borrowers with existing mortgages that needed to be paid off.  We have seen so many borrowers with mortgage balances that were just too high to pay off with a reverse mortgage, even when they had a property with a high enough value to support the reverse mortgage based on the lower loan to values reverse mortgages typically require.  For those senior borrowers, the increases being discussed now could be a life line.  Many have seen their retirement funds shrink or disappear.

They have mortgages with monthly payments they can no longer make.  The jumbo reverse mortgages vanished with the credit crunch in the second half of 2008 and for many of these senior borrowers, the HUD HECM has never even been an option…until possibly now.  Although it can be a long way from the House of Representatives to being signed by the President, this is one provision which could help many senior homeowners of higher valued properties stay in their homes.  

By granting them access to the equity they have via a government-insured HECM, Congress may give a greater number of seniors the added ability to stay at home and age in dignity during these tough times.

Can the $625,500 Reverse Mortgage Limit help you?

If you would like a complete, no-obligation personal analysis including amortization schedules and costs associated please call Toll Free (888) 801-2762 Ext. 1 or request reverse mortgage analysis

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