The potential removal of the HECM’s national loan limit presents disparities in neighboring counties
The updated Housing Finance Reform Plan is ambitious in both its scope and impact on the housing industry and more particularly reverse mortgage industry participants. One of the proposed changes to the HECM (Home Equity Conversion Mortgage) is the removal of the national loan limit and a return to the county-by-county structure of yesteryear. Such a change requires Congressional approval.
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In 2019 HUD increased lending limits for most counties across the U.S. However, those unfamiliar with the localized caps may be surprised at local disparities. For instance, the offices of Reverse Focus are located in Shasta County- situated 2 hours south of the Oregon border. The current FHA loan limit for Shasta county is $314,827- a price few homes fall below. Yet just a short 20-minute drive south in Tehama county (where average home sale prices are considerably less) the loan limit is strangely the same- a scenario likely to be replayed throughout the markets of many HECM professionals.
All which brings us to the question of what if Congress removes the HECM program’s national limit? It would be expected that higher-valued homeowners on both coasts would stand to benefit the most under FHA’s high-cost areas cap under which we’ve functioned since the passage of the Housing & Economic Recovery Act (HERA) of 2008. It would also open a significant opportunity for the creation of private/proprietary reverse mortgages for those with homes that exceed the reduced county limits and fall below today’s cap of $726, 525.
While no PLF (principal limit factor) cuts have been announced, the repeal of the HECM’s national lending limit would cut much deeper for higher-valued homes in lower-cost MSAs.