Reverse Mortgage Loan Limit Increased: Impact & Outlook

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Potential Impact of Lending Limit Increase

reverse mortgage newsThe Department of Housing and Urban Development announced the third consecutive increase of its national lending limit to $726,525 for the federally-insured reverse mortgage and FHA loans beginning January 1st, 2019. An increase of over $46,000 from its previous limit of $679,650. The risks the Home Equity Conversion Mortgage poses to FHA’s mutual mortgage insurance fund have been well-documented which may lead some to ask will the loan limit increase losses or negatively impact the thriving jumbo reverse market?

Well generally lauded by industry participants there are perspectives that warrant further consideration. Will this make a notable change to help boost overall loan volume? Are there any particular advantages in HUD attracting more owners of higher-valued properties? How does this impact the recent growth of private or proprietary jumbo reverse mortgage loans? To answer these question we reached out to a few our fellow reverse mortgage professionals.

Dan Hultquist VP of Education & Organizational Development at Live Well Financial and author of Understanding Reverse sees the move as such a positive he’s written a new chapter in the 5th edition of his book. Dan sees more money for the homeowner and lower risk for FHA. “Consider a 73-year old borrower with a 5% expected rate, that allows the borrower a principal limit factor (PLF) of 47.50%. So long as the home appraises for at least $726,525, this borrower’s initial principal limit will be $345,099. However, when you calculate the initial maximum Loan-To-Value (LTV) for homes above this amount, it is obvious that FHA’s risk declines with higher property values.” The bonus for FHA is that these borrowers will pay the maximum upfront mortgage insurance premium of $14,530.50- even when there is a lower loan to value ratio... [download transcript]

4 comments

Steve Kule December 31, 2018 at 7:13 am

The new increase in HECM limits are a good thing, however it still doesn’t solve the issues of why New York, with one of the highest priced areas for housing does not have any jumbo reverse products. Million dollar homes are certainly not scarce in this state, and we are missing out on many opportunities

Reply
James E. Veale, CPA, MBT December 31, 2018 at 7:50 pm

Steve,

In some cases that is a state law legal issue, not a federal one. There are several states that will not permit jumbo reverse mortgage products.

Then there is the lender side. The risk in some states exceeds the reward for many lenders. Check around. This is not a new issue.

Reply
Steven Kule January 2, 2019 at 11:03 am

I am aware that it is a state issue, not a federal one. I have reached out and spoken to several politicians and housing committee members, all of whom were not aware of this. However, the wheels of the government turn very slow, if at all. I don’t think it’s a lender issue as we have many jumbo products on the forward side

Reply
James E. Veale, CPA, MBT January 6, 2019 at 5:23 pm

Steve,

Perhaps you do not remember when Texas could not originate HECMs and then later when they could, they could not originated H4Ps. You need to get together with those who are responsible for those changes. Yes, the politics in both states are very different but the principles are not. It takes vision, work, persistence, and finding those politicians and constituents who can make a difference. Perhaps you will succeed, perhaps you won’t but at least you will have tried. For now you need to mobilize those in the industry who have your vision for change.

I suggest you speak as soon as possible with Scott Norman who led the fight in Texas for HECMs.

Reply

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