HUD announces the new maximum claim amount for HECMs in 2020
Today FHA released Mortgagee Letter 2019-20 announcing the new maximum claim amount (or lending limit) for Home Equity Conversion Mortgages. The new limit of $765,600 is in effect for the calendar year 2020 and represents a $39,000+ increase from last year’s MCA.
The move is not an unusual one. Reverse Mortgage Daily reports that the Housing and Economic Recovery Act or HERA mandates that conforming loan limits must reflect changes in the average U.S. home price. Last month, the Federal Housing Finance Agency announced a 5.38% increase in the Housing Price Index between the third quarters of 2018 and 19. By no coincidence, the lending limit increased nearly the same percentage.
The move may appear ironic at first glance since HUD called for a move away from the national lending limit returning instead to regional limits- a move the agency says will reflect local variations in housing markets and prices. That recommended reform, however, is legislative and requires the approval of Congress. With our current backlog of legislation in the House don’t expect to see that change soon.
Late this summer a request to abandon a national HECM lending limit was made in HUD’s Housing Finance Reform Plan. A return to the national lending limit would significantly impact HECM originations for higher-valued homes in counties that have a low mortgage limit. How much so? In our September 16th blog post we noted significant disparities in our own local market. A short 20-minute drive from our home offices would see over a $400,000 reduction of FHA mortgage limits if the national limit for HECM were to be repealed. Previous principal limit factors would pale in comparison.
This is welcomed news for lenders and originators alike. With today’s low-interest-rate environment some HECM borrowers stand to net significantly more loan proceeds. How this will affect proprietary reverse mortgage loans remains to be seen. While no national consolidated number of origination of private loans is available, more anecdotal reports indicate considerable growth. In addition, some lenders are offering private reverse mortgages for property values as low as $400,000. A move that clearly puts these products in the hunt to compete directly with the HECM.
Higher loan limits and lower interest rates could pave the way for moderate growth of HECM loans in 2020. Consider this most recent mortgagee letter your early Christmas card. One that hopefully brings you good cheer in the final days of 2019, and into the new year.
1 Comment
Applying an old saying that came to mind, (when it comes to HUD and HECMsthe HECM lending limit “does the left hand know what the right hand is doing?” I am sure others read this thinking about the same thing. On one hand we have the executives at HUD saying that one of the ways that the HECM needs restructuring is by changing the lending limit to be like it was before HERA. Then after proposing that, why did HUD increase the existing lending limit?
Perhaps what they will be doing is making the lending limit for 2020 the highest it can be for any eligible geographic region where the average home exceeds that amount. But that is stretching things too far at this point since Congress has not eliminated the existing single national lending limit and replaced it with county (or other geographical division of the lending limit).