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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)

Jan 29th, 2009

House Passes Stimulus Bill with Loan Limit Increase!

We are pleased to report that the economic recovery bill passed by the U.S. House of Representatives last night includes the provision we reported to you last week that would set the single national loan limit for the HECM program at 150% of the Freddie Mac loan limit. Currently, the Freddie Mac limit is $417,000, so this bill would establish the Reverse Mortgage limit at $625,500.

The Senate is expected to bring its version of an economic recovery bill up for floor debate and a vote early next week. We do not expect a similar HECM provision to be included in the Senate bill.

That will leave us with the challenge of trying to protect this item from being stripped out of the bill during the negotiations to come to work out the differences between the House and Senate bills.

The goal right now is to conclude passage of this bill and present it to President Obama by February 16th.

Jan 21, 2009

$625,500 Reverse Mortgage Limits & New Homes for All

On this historic day we have witnessed the swearing in of the first African American President of the United States of America and all Americans are hopeful.  President Obama has his hands full and so does our congress as Americans are facing extremely tough economic times.  There are two Bills in the House of Representatives that if passed and ultimately pass the Senate and are signed into law by President Obama will help many American families.

The first Bill pertains to senior borrowers.  When Congress passed H.R. 3221, the Housing and Economic Recovery Act of 2008, one of the provisions was to raise the national limit of the Home Equity Conversion Mortgage (HECM or “Heck-um”), also known as a reverse mortgage, to a single national limit.  This helped many borrowers nationwide as the old limits started at just over $200,000 and capped at a maximum of $362,790. 

The new limit would establish a single limit for the entire country higher than the existing highest limit.  But the Legislation was extensive and not even all member of Congress knew exactly what they passed.  The two Senators from California alone, Diane Feinstein and Barbara Boxer both issued letters with different limits based on their understanding of the new legislation!

After HUD reviewed the legislation, they made the decision to raise the limit to the lower of the limits being discussed, $417,000.  While this amount helped many borrowers nationwide, it was not much benefit to senior borrowers in higher cost markets where the limit was only raised from $362,790 to $417,000. 

Add to that pressure the total collapse of all jumbo reverse product with the credit crisis and soon many senior borrowers found themselves without adequate means as their 401K and stock market funds disappeared and there was no viable alternative to relieve them of their higher mortgages.

However, there is now a Bill containing a provision to raise the HECM limit through the end of 2009 to $625,500 which has been introduced in the House of Representative according to the National Reverse Mortgage Lenders Association (NRMLA).  If ultimately passed and signed into law, senior borrowers with higher valued properties who cannot get relief now due to the limits of the HECM program may find relief in a higher limit.

A second Bill which has been introduced in The House of Representatives which may bring hope to all borrowers seeking to purchase a home is H.R. 600 which will restore Down Payment Assistance Programs.  The current form of the Bill can be viewed here: http://www.sgadpa.com/docs/HR600.pdf. 

This is another Bill which is a long way from being passed, but those looking to purchase a home had a vehicle as late as September of last year (loans actually had to fund by October 1, 2008) by which they could utilize the Down Payment Assistance Program (DPA) and purchase a property with 100% financing.  If this Bill should ultimately pass and be signed into law, qualified buyers whose only obstacle to homeownership will again have a vehicle to purchase a home utilizing FHA financing. 

Considering how drastically the costs of homes have dropped in many areas of the country and how low interest rates are right now, this could not be a better scenario for those looking to purchase in this market.  Young, first-time buyers would be able to buy more house with the current rates and a viable DPA than at any time in the recent past.

So as the nation welcomes our 44th President, we also welcome the news of legislation which will help homeowners and prospective homeowners of all ages.  As we have great hopes for this President and his administration, we also have hope that our legislators move swiftly on these pieces of legislation.

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