Will we see a $1 million HECM limit in 2023?
Rocket Mortgage reports their estimated 2023 baseline conforming loan limit for FHA-insured loans in 2023 will be $715,000, That’s 10% higher than $647,200 last year’s conforming loan limit which we covered here on HECMWorld. Consequently, all HECM loans with case numbers in 2022 saw a HECM limit of $970,800. If Rocket Mortgage’s estimate is correct, then the 2023 HECM Limit, or what many in our industry refer to as the lending limit, will likely exceed one million dollars! To be honest, that’s not a huge jump from our present lending limit but notable nonetheless.
So how did we arrive at such a number or more importantly how is the HECM limit set in the first place?
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First, the HECM limit or national lending limit is 150% of Freddie Mac’s national conforming limit. This formula was established in 2008’s Housing and Economic Recovery Act or HERA which was enacted in 2009. Using Rocket Mortgage’s estimated conforming limit of $715,000 we then multiply that by 150% to arrive at $1,072,500.
Section 1124 of the 2008 Housing and Economic Recovery Act explains that the conforming loan limit shall be adjusted effective January 1st of each year by factoring in the most recent 12-month increase in the Federal Housing Finance Agency’s Housing Price Index or HPI.
Despite the recent slide in home values that began late this summer, the red-hot housing market boosted prices throughout 2022. Case in point, the FHFA (Federal Housing Finance Association) reported home values fell 0.7 percent in August yet prices increased by 11.9% from August 1021 to August 2022.
What’s the likely outcome? In 2024 we’ll likely see no change to the limit established in 2023. But why not a reduction? Because even if the home price index fell by 25% in 2023 the previous HECM limit would remain in effect. However, any drop in FHFA’s Home Price Index must be offset by any subsequent year’s gains before the limit can be increased. For example, the HECM limit remained at $625,500 from 2009-2016 as housing market prices recovered their losses in the wake of the Great Housing Crash. It wasn’t until 2017 the HECM program saw its first limit increase in seven years rising to $636,150.
The good news is the pandemic housing pandemonium drove home prices to historic highs, giving HECM lenders and borrowers extremely favorable maximum claim amounts that will remain intact. The bad news is that an irrational market fueled by the Fed’s interest rate cuts and stimulus created another asset bubble. Regardless, the future beneficiaries will be HECM borrowers with homes in states with high median home values. The bad news is we’re unlikely to see any increase in HECM lending limits for several years until the full brunt of our current housing recession is eventually erased.
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Additional Reading:
FHFA House Price Index Down 0.7 Percent in August; Up 11.9 Percent from Last Year
[Rocket Mortgage] Conforming Loan Limits in 2023
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4 Comments
This may help with those who are getting pushed out of the Jumbo RM loans by some lenders.
Excellent point!
In notifying the industry of the new limit for calendar 2021
in Mortgagee Letter 2021-29, posted and dated 11/30/2021,, HUD explains the process differently. The amount is 150% of the Freddie Mac limit for 2021. There is no mention of FHFA..
HUD officially told us in ML (Mortgagee Letter) 2021-29, dated and posted 11/30/2021, how it calculated the MCA (Maximum Claim Amount) Limit for calendar year 2022 and although similar to what was presented, it is not the same.
In HUD ML (Mortgagee Letter) 2021-29, posted and dated 11/30/2021, HUD states that the HECM MCA Limit for 2022 was 150% of the 2022 national conforming limit for Freddie Mac of $647,200. (Note that neither the FHFA nor Fannie Mae are even mentioned.)
There is no law requiring HUD to increase the HECM MCA Limit in the manner that it is now being done. In fact in the 2009 Obama Stimulus Act established the current method to
raise the Freddie Mac national conforming limit, HECMs were supposedly, unintentionally omitted. Later in 2009, the omission was officially recognized and it was decided that HUD could raise the HECM MCA Limit in the manner described n HUD ML 2021-29.
It should be pointed out that it is generally believed that the HUD Secretary could change the methodology under the general power granted to her under.the 2013 Reverse Mortgage Act. That power is restricted to changes that the Secretary believes will fiscally improve or protect the HECM program.