Maximum HECM (Home Equity Conversion Mortgage) Loan Limits have not
been resolved yet. HUD lawyers are currently working with
legislators to interpret the language in the new law.
There are 3 possible scenarios that could be implemented: a. National Loan Limit of $417,000
b. National Loan Limit of $625,500
c. Area limits at 115% of the area median home values, ranging from $417,00 - $625,500.
Impact on You:
Regardless of which option is implemented, these higher loan
limits will provide a great refinance opportunity for seniors with
higher value homes who have already done reverse mortgages, as well as
many more seniors who may now do a reverse mortgage since they will
have access to much more equity.
If Option A or B are implemented, either of these options could
be implemented quickly and the goal would be October 1, 2008; the start
of the federal fiscal year. If Option C is implemented, it is
assumed that the effective date would be postponed while HUD calculates
these area limits, with an implementation date likely on January 1,
2009 when the forward limits would also change. (If this option
is taken, the current FHA limits would remain in effect through the end
of the year.)
* Please note, this information is
not an offer to lend on proposed lending limits. All Reverse Mortgage
Company will not accept applications on new lending limits until the
official mortgagee letters have been released by HUD. If you are
waiting for the increase in limits please call or complete our online questionnaire.
This piece of the legislation clearly outlines who can and cannot be
involved in the origination of HECM reverse mortgages. It states
that all originators must be FHA approved lenders/correspondents.
The following is a direct quote from the Bill itself:
parties that participate in the origination of a mortgage to be insured
under this section shall be approved by the Secretary."
This will be implemented via Mortgagee Letter within 30 days,
with an effective date 30 days after that, no later than October 1,
2008. The effective date will most likely impact loans with an
application date from the effective date on, so any loans currently
originated and in the pipeline would still be allowed to close.
There are several new products and features that will now be available
to the reverse mortgage industry, including HECM for purchase, HECM for
Co-Ops and manufactured homes.
a. HECM for Home Purchase
This would allow the HECM to be used for a purchase money mortgage.
The value would be based on the lesser of the sales price or
appraised value. Also, the home must be bought outright with a
combination of the reverse mortgage and cash. No subordinate liens can be created, and any unsecured debt, credit card, etc.. can be used. This restriction is very similar to the current regulation in regards to bringing money to closing to pay of mortgages.
Implementation Date: The Mortgagee Letter has already been drafted, and the proposed implementation date is within the next 60-90 days.
b. HECM for Co-Ops
This will allow the HECM loan to be used on Co-Ops throughout the country.
This Mortgagee Letter has already been drafted with a proposed
implementation date in 60-90 days, effective 30 days after the Letter
c. Manufactured Homes
First, this will allow HECM loans on manufactured homes that are in
Condo developments. Second, it will include a complete
overhaul/streamlining of the entire condo development approval process.
The first piece, allowing manufactured homes in condo
developments will have a Mortgagee Letter released in about 30 days,
with an effective date 30 days after that. The second piece, the
entire overhaul of the condo approval process is a more long-term
endeavor and will be done next year, most likely.
Lenders will no longer be permitted to pay for counseling, either
directly or indirectly, under any circumstances whatsoever. The
counseling will either have to be paid directly by the borrower or from
HUD grant money.
Counselors must have a policy for hardship cases for borrowers that
can't afford the counseling, and can not deny counseling to a potential
borrower based on their inability to pay.
Sometime this Fall, HUD will also begin requiring all individuals on
the roster of approved HECM counselors to have passed the counseling
exam. Individuals currently doing HECM counseling will have up to six
months to pass the exam; new counselors will have to pass before
beginning counseling. New counseling protocols will also be implemented
The law calls for HUD to consider utilizing some of its FHA Mortgage
Insurance Premium income to pay counseling costs, but HUD's lawyers
have determined that this provision is flawed and would violate federal
credit reform requirements and is impossible to do.
Implementation Date: Mortgagee Letter should be issued on this within the next 30 days.
The Bill also addresses, or fails to address, several other important issues.
a. Eliminates the Waiver of Upfront MIP when the
proceeds are used to fund a Long-Term Care insurance policy.
This waiver was put into law as part of the 2000 Housing Bill, but was never implemented within the industry.
b. HECM Cap will need another suspension. The
current cap is 275,000 loans, but we have crossed well above this
figure at this point.
We expect that the HECM Cap suspension will be continued until next
year through a Continuing Resolution by Congress later this year.
c. The Bill also requires several studies to be
completed. FHA will be conducting a study on the consumer impacts
of changes in the legislation, while the General Accounting Office
(GAO) will be conducting studies on the financial soundness of the
program and ways to reallocate or adjust the upfront MIP fees.
As far as the new language requiring lenders to have "safeguards and
firewalls" to make sure individuals do not have any incentives for
cross-sales of other financial or insurance products with HECMs, HUD
will be issuing a Federal Register notice soliciting industry input on
how to implement this provision. It will take a few months before they
can do this. However, in the meantime, NRMLA members should be
forewarned that the new law is in effect -- even though no guidance
will be issued for a while -- so you are advised to consult with your
own counsel and take steps to assure you do not run afoul of this
Implementation Date: This will take HUD several months to issue any guidance on.
morning, FHA Commissioner Brian Montgomery announced that the new HECM
nationwide loan limit (maximum claim amount) will be $417,000. The target effective date is November 1"
is a target date right now, not a set deadline. We still expect FHA to
increase the “floor” on the origination fee from $2,000 to
$2,500. A mortgagee letter will be published shortly that provides
was some debate within HUD to consider area limits at 115% of area
median home value, with a floor of $417,000 and a cap of $625,500.
Ultimately, the interpretation was determined that the new legislation
will be a $417,000 loan limit. As many of you recall, this was the
original limit embraced by the industry.
NRMLA requested a more liberal interpretation to $625,500 in high cost
areas, the complexity of the bill’s language created much debate
and ultimately this final decision. Nonetheless, we are pleased with
this major milestone for the industry.
majority of U.S. counties have lending limits at the existing floor
(currently $200,162), which has drastically reduced the amount of
equity that seniors living in higher-valued homes could access. We
believe these new limits will have a significant impact on the quality
of life and provide more relief to those seniors who need the help
especially in today’s turbulent economic environment.
are all positive developments for the reverse mortgage industry and the
clients we serve. And as HUD moves toward the implementation of many
other important aspects of the housing bill including the new purchase
product and co-op lending, we look forward to continuing to report on
additional developments in these areas in the near future."
Announcement comes from NRMLA (National reverse Mortgage Lenders Association) 10/02/2008
How much difference will the $417,000 limit bring to senior homeowners
in high-cost areas? We're the first to show you. The table below
illustrates the net principle lending limits based on a national
$417,000 lending limit.
New Reverse Mortgage Calculations
Age of youngest borrower
$362,790.00 + VALUE
$417,000.00 + VALUE
- shown for illustration purposes only -
you, family, or client are following this bill because you have
previously been short to close on a reverse mortgage with today's
lending limits, have waited for improved loan terms, or would like to
purchase a home utilizing the HECM (Home Equity Conversion Mortgage)
call today and we will provide you a formal proposal package.