Studies Detail HUD’s Risk for HECM Loans

HUD's Risk for HECM Loans

Home Values, Loan Amounts, and Seniors

Home values, loan amounts, and the way seniors use home equity conversion mortgages impact the Federal Housing Administration’s potential liability for its reverse mortgage program, recent studies show.

If the Department of Housing and Urban Development had used the same home appreciation models for fiscal year 2010 as it did in prior years, there would be no need for a $798 million subsidy appropriation for the HECM program, HUD officials told the Government Accountability Office in a study mandated by Congress.

And reverse mortgages with term or tenure plans are much less likely to be assigned to the FHA than line-of-credit loans, a Federal Reserve Board economist found in her own research of the HECM program.

HUD made a number of improvements to its cash flow model in 2008, partly because of a HUD Office of the Inspector General’s audit that found material weaknesses, said the GAO in a July 30 report. That year HUD began to incorporate national house price appreciation and interest rate forecasts from IHS Global Insight, an independent source for economic and financial forecasts, the report said.

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New Loan Limit… It’s here!

Under ARRA, the national FHA loan limit for HECM will increase from $417,000 to $625,500 (from 100 percent to 150 percent of the conforming limit).  HECM loan mortgagors do not undergo the same procedures for credit approval as do mortgagors for forward mortgages.  FHA does not deem the credit approval process to be complete until the HECM loan is closed.  Therefore, HECM loans closed on or after the date of this Mortgagee Letter are subject to the higher maximum dollar amounts. 

 

            In those areas, the maximum claim payable by FHA is 150 percent of the Freddie Mac conforming limits.  To avoid potential cases where a claim could be less than the national limit, as adjusted for the special exception areas, HUD had decided not to make the adjustment.  Therefore, these few special exception areas will have the same $625,500 limit as all other areas.

 

FHA will, for a limited time, allow HECM loans that received case number assignments but did not close prior to the effective date of this mortgagee letter to be closed using either the old limit that was used to originally calculate the loan, or the new limits as prescribed herein.  An option will be made available in FHA Connection for the lender to choose which rate to use.  This option will be available until April 30, 2009.