FHA Modernization and Reverse Mortgages
Michael Branson (CEO ARMC) 7/16/08 3:01pm
Fed Chairman Ben Bernanke spoke again today, this time about inflation, economic growth and the possibility of future rate hikes. A full story on the speech can be found on Wall Street Journal's Market Watch and basically what Bernanke is saying is that although the weak dollar is driving costs up and therefore inflation is rising, the Fed does not feel that they can raise the interest rates at this time. Initially, this caused the stock market to weaken still further and oil to shoot up, as the dollar weakened still further on the news.
This will keep mortgage and other rates down, some think as long as through mid-2009. There did not appear to be any room in the statement for further rate cuts, but the current low rate environment appears to be with us for the next several months anyway. Bernanke seems to feel that whichever way the Fed chose to act, the inflation is going to continue to rise and therefore a tightening of credit is not warranted and no matter what, inflation "seems likely to move temporarily higher in the near term," according to Bernanke.
This is all bad news for seniors living on a fixed budget but can be a mixed bag for senior homeowners looking for a reverse mortgage. Obviously no one wants to hear that inflation is rising and costs are going up. That means that the costs for gasoline (transportation), food, air conditioning in the summer and heating in the winter and everything else is rising. However, if the rates are not going up, seniors can still take advantage of the current low interest rate environment to lock in their Expected Rate on a government-insured Home Equity Conversion Mortgage (HECM or Heck-um). The Expected Rate is one of the components of the HECM loan that determines how much money for which a borrower will qualify. The lower the rate, generally the more money the borrower will receive (except at times when rates are so low that the interest rate no longer becomes a factor but that is not the case with today's rates).
So if you take Bernanke's indications that the rates should remain low and add that to the President's comments in his address to the nation and legislators efforts and we have yet another possible silver lining for senior homeowners looking to obtain reverse mortgages. There has been a Bill (actually both a Senate and a House version) bouncing around Congress for over a year now which will modernize the Federal Housing Administration when finally passed and signed into law. Part of this Bill calls for the increase of loan amounts for reverse mortgages. The Bills have at various times over the last year called for an increase in the current limits (which are now set at different amounts based on the county in which the property resides) to one of three amounts, depending on the version of the Bill which is finally passed and signed into law by the President. The current limits start at $ 200,160 and go to a maximum of $ 362,790 for the government-insured HECM based on the HUD Website
The new proposed limits have vacillated from a national limit of $ 417,000 to House or Senate versions proposing limits of $ 550,000 to $ 625,000. No one knows at present when or if these new limits will ever pass Congress, make it to the President's desk and be signed into law, but if/when they do, this would give senior borrowers an excellent alternative to the shrinking jumbo or proprietary reverse mortgage market available today. No one wants to see the prices rising or the inflation making it difficult for senior homeowners to get by. However, if you are a senior homeowner and you have been thinking about getting a reverse mortgage, the lower interest rates make getting a reverse mortgage a better alternative. These two pieces of news together could be very important to you if you or a loved one are in the position to where a reverse mortgage is in your near future.
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