Lifting the loan cap is just the beginning in providing true stability for the HECM program
The Trump administration reaffirmed their commitment to the Home Equity Conversion Mortgage program while signaling potential upcoming changes in it’s proposal for HUD’s 2019 budget. The White House wrote “The Budget will again propose permanently lifting the cap of 275,000 loan guarantees to provide further stability for the HECM program. This proposal reflects the significant improvements that have been made to the program to reduce risk to the MMI Fund and to ensure responsible lending to seniors.”
It can be argued that the best way HUD can provide stability for the HECM program is to allow it to gain a solid footing before enacting additional changes. However, HUD officials state they are exploring additional changes to the HECM in fiscal year 2019. What changes? One would be a return to…
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The first thing I have been noticing is that originators are still confused by the 275,000 cap on endorsements. Far too many lack the education to understand that we are talking about a lifetime program cap, not an annual cap. They simply do not understand that whenever a budget or continuing resolution is proposed, Mr. Peter Bell and the NRMLA staff must determine if there is a continuation of the suspension of the cap that began in fiscal 2007 or if the program will simply terminate due to the cap going back into force. So far Congresses and Presidents have been working with us but the best answer would be an end to the cap altogether which this budget currently proposes.
While few of us enjoyed the low lending limits before fiscal 2009 or having to be constantly aware of how they changed, this budget seems to want to return us in someway back to such a system.
Due to the tremendous differences in home appreciation rates by geographic locations throughout the country, I believe that PLFs should be stratified and classified by both geography and average appreciation rates for the prior five years in that geographic location. The higher the appreciation rate, the higher the strata of PLFs offered. The strata should be in about five categories and should be adjusted quarterly.
Further lending limits should follow the same principles. I do not believe that a $700,000 home in a geographic area where the average price of a home is $150,000 will appreciate as quickly as a $700,000 home in the financial district of San Francisco or San Jose.