Bill Would Lower Reverse Mortgage Principal Limits

A House of Representatives appropriations bill would require the Department of Housing and Urban Development to reduce the amount of home equity a borrower could receive through a reverse mortgage to ensure that the government program operates without a subsidy. However, the bill also appears to extend the $625,500 maximum lending limit through fiscal year 2010.

HUD earlier this year asked Congress for a $798 million subsidy for the Federal Housing Administration’s home equity conversion mortgage insurance program to cover potential losses due to falling home values. HUD Secretary Shaun Donovan said he chose not to raise insurance premiums charged to borrowers. But he acknowledged during a Senate subcommittee hearing that changes could be made to premiums, loan-to-value and other factors.

Rep. Tom Latham (R-Iowa) offered the amendment to the bill that requires Donovan to adjust the factors used to calculate the principal limit, “as necessary to ensure that the program operates at a net zero subsidy rate, except that no principal limit factor may be reduced below 60.”

However, the subsidy savings ended up being redirected to Section 8 housing programs, according to Latham’s spokesman Fred Love. He said Latham knew low-income housing would need more funding so it was an “acceptable avenue to pursue.”

While the principal amount a borrower would receive could be reduced, the bill’s language for FHA reverse mortgage loan limits for fiscal year 2010 appears to be similar to language used in the American Recovery and Reinvestment Act of 2009, which temporarily increased the HECM loan limit from $417,000 to $625,500 for calendar year 2009. The principal limit is calculated using the maximum loan limit or appraised home value, whichever is less.

“Based on this, if this language we received as contained in the current appropriations bill is enacted into law, we would view the HECM loan limit for 2010 to be $625,500,” said Jim Milano of the law firm Weiner Brodsky Sidman Kider in an email.

The House Committee on Appropriations approved the bill on July 17. It was expected to be heard on the House floor this week, said a committee spokesman on Monday.

The Senate also needs to pass its version of the HUD appropriations bill, National Reverse Mortgage Lenders Association President Peter Bell told the Reverse Mortgage Daily. He said when Congress returns in September, a conference committee would negotiate any differences between the two versions.

Reducing what a senior would get from a reverse mortgage is “problematic,” Bell said in a National Mortgage News report. “We might find that some people that want a reverse mortgage won’t be able to get enough money to pay off their existing mortgage. They will be forced to sell the house and move.”