FHA has announced that the HECM limit will be increased effective January 1st, 2024. The new HECM limit or the maximum home value that may be considered in the federally-insured reverse mortgage is $1,149,825. This applies to traditional HECMs, HECM-to-HECM refinances, and purchase transactions with case numbers assigned in the calendar year 2024. This effectively increases the HECM limit by $60,525 higher than 2023’s limit.

So how is the HECM limit calculated? The HECM limit is one-and-a-half times or 150% of the Federal Housing Finance Agency’s annual conforming limit. The conforming loan limit is the maximum dollar amount of a mortgage that Freddie Mac or Fannie Mae is willing to purchase or guarantee. Since the 2024 conforming limit is…

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$766,550 the HECM limit is $1,149,825. So how are any increases in the limit calculated?

Any increases to the HECM limit in a given year are based on an increase in the Federal Housing Finance Agency’s Home Price Index or HPI which tracks the average price changes in recurring sales of similar single-family properties securitized or purchased by the GSEs Fannie Mae or Freddie Mac. Due to the index’s growth both the HECM limit and conforming loan limit increased 5.5% in 2024 over 2023. While this welcomed news for originators in high-cost housing markets, the increase is less than half of the 12% HECM limit boost seen in 2023. This can be attributed to slowing home appreciation.

So what happens if there’s a housing reset or crash leading the Home Price Index to fall? To answer that we can simply look back to the years following the Great Financial Crisis of 2008. With many markets across the country having seen home values fall 30-50% in the housing crash the HECM limit remained at $625,500 between the years 2009-2016. It wasn’t until increases in the Home Price Index which began around 2012 had erased previous negative benchmarks that the HPI began to increase in 2017. In other words, a decrease in the Home Price Index doesn’t reduce the HECM conforming limits but instead, those losses must be offset by gains before any increases are made. For example, the growth of the index and the subsequent HECM limit track closely with a steadily recovering housing market in the years 2017 through 2021. The biggest increases were seen in the following post-pandemic housing boom.

When it comes to the HECM limit the terminology gets a bit confused, even among reverse mortgage professionals and regulators. In his blog UnderstandingReverse.com Dan Hulquist writes, “No this is not a ‘lending limit”. Stop calling it that. A lending limit is a traditional (forward) mortgage term. On the reverse side, borrowers can borrow more than this amount if they hold their HECM long enough and/or their line of credit grows to exceed this amount. It’s also not the Maximum Claim Amount or MCA.  Even regulators make this mistake in drafting the update each year. The MCA is the home’s value UP TO the HECM limit. The HECM limit is the maximum home value that can be used for calculating principal limits in a calendar year.

So what lies ahead? If home values fall modestly or even substantially next year the 2025 HECM limit would remain the same until cumulative gains in the Home Price Index exceed any previous reductions. Should home prices fall substantially we may find ourselves with a $1.1 million limit for some time.

Resources:

FHA: 2024 Home Equity Conversion Mortgage (HECM) Limits

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