HECM ‘line of credit’ growth still beneficial but more realistic
Recent changes to the Home Equity Conversion Mortgage enacted on October 2nd have reduced the ongoing FHA insurance premium substantially and led to many lenders reducing their loan margins to soften the blow of reducing lending ratios or PLF factors. What can be easily overlooked is the impact on the line of credit growth rate.
For decades the growth rate of the reverse mortgage’s principal limit, or ‘line of credit’ was largely ignored or overlooked. Few promoted this distinctive benefit unlike any other mortgage loan offered to homeowners. That changed as reverse mortgage professionals began to engage the financial planning community. The benefits of the reverse mortgage’s use in retirement, and more specifically a series of academic papers illustrated the ‘standby’ reverse mortgage strategy.
With lenders lowering margins by an average of a half of one-percent to soften the blow of reduced lending ratios, and drastically reduced ongoing MIP insurance premium rate the growth rate stands to be reduced by…
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2 Comments
If I am understanding your point, all of the amortization tables I have provided to my clients who took the HECM LOC over the last thirteen years were wrong, they continue to show growth beyond 150% of the initial PL. The idea that the LOC is capped at 150% of the initial principal limit does not take into account that the unused PL grows because there is an assumption that over time, a homes value appreciates. Can you please get an “official” ruling on this?
Alfie,
What do you mean by “official” ruling? The rule is found in the regulations just issued by HUD. The problem you have as so many others is that you use imprecise language.
Congress makes laws. The highest level of authority any government agency or department issues are regulations. Mortgagee Letters, Handbooks, and other HUD rules have a lower level of authority.
If you have questions about this rule, I suggest you contact Steve Irwin or Peter Bell at NRMLA. I do not read and cannot confirm the position NRMLA takes but they have direct contact with so many lenders that I do not.