02/25/2009 - Official $625,000 Reverse Mortgage Loan Limit

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

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02/17/2009 News Following this Post:

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)

2009 Reverse Mortgages Limits Raise to $625,500

The National Reverse Mortgage Lenders Association (NRMLA) has announced that they have verified that the temporary increase in the HUD Reverse Mortgage program is included in the Stimulus Bill which was approved by the House-Senate Conference Committee yesterday.  The language contained in the NRMLA announcement states that the limit shall be raised on a temporary basis to 150% of the Freddie Mac Limit for the remainder of 2009 which would put it at $625,500. 

HUD normally has different limits for different areas, except in the case of the Home Equity Conversion Mortgage (HECM or “Heck-um”) program which was just changed last year to a national limit of $417,000.  This is important because that would seem to indicate that there will be no differences in high cost areas versus areas not considered high cost, that the limit will be $625,500 nationally.

This is very important to senior homeowners who have properties with higher values, especially those who previously had existing mortgages with balances that the traditional reverse mortgage program could not pay off.  With the disappearance of proprietary or jumbo reverse mortgage products, these senior homeowners had nowhere to turn.  With the passage of this program, senior borrowers with high valued homes may now be able to receive much more money to use for whatever need they may have, including retiring higher existing debt.

Taking a look at the chart below, you can see how much more a borrower can expect to receive under the new limit.  This chart is only an estimate and you must use the Reverse Mortgage Calculator to get your exact figures for your area, but if you take the youngest borrowers age and look at the figures on the chart, it will give you an estimate of the comparison of approximately what the borrower would receive at the existing limit of $417,000 and how much more he/she/they will receive at the new proposed limit of $625,500. 

If you have been waiting because your benefit amount would not pay off enough of your existing debt; if you had already received a reverse mortgage but were limited in the amount of funds you could receive even though your property was worth considerably more than the current HUD limit; or if you find that with the current economic circumstances you must do something to protect your way of life, it might be time for you to look into or relook at a reverse mortgage under the new limits.

The Bill will only make the limits available until the end of 2009 and then it would be up to Congress to vote to extend that loan amount further.  Also, the Bill must still be signed into law by the President and then implemented by HUD before a single loan can be done at the new limit.  But if this is something that will help you or your loved ones, if might be something you want to start thinking about now. 

No one knows what the effect on the volumes of the reverse mortgage lenders will be yet (this change coupled with the purchase reverse mortgages when the final clarifications are finally released by HUD are both coming out about the same time).  There is a backlog in underwriting and closing on the forward loan side with FHA loans now, and there is a possibility that lenders may become bogged down on the reverse side as well if these programs trigger a flood of new applications. Margins and rates fluctuate with reverse mortgages now more than ever in the past. 

Keep these things in mind as you and your loved ones consider the new higher limits and don’t wait until the last minute to start the process if this is what you plan to do.  If you have questions, seek the help and guidance of a qualified reverse mortgage specialist in conjunction with your trusted family financial advisor.  We look for this to be a very good opportunity for those who need it and can really use it.

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

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Previous Related Posts:

• $625,500 Reverse Mortgage Calculator - HECM Limits Compared
• Economic Stimulus Help Seniors with Reverse Mortgages
• Reverse Mortgage Limits and New Hopes for All