Smart Planning with HECM60

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Set Yourself Apart as a Reverse Mortgage Planner

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Set Yourself Apart as a Reverse Mortgage Planner

#1 Distribution limits. Your reverse mortgage borrowers with high existing mortgage balances will only be impacted by the lower Principal Limit Factors NOT the Distribution Limit. That’s right. HUD allows for those with mandatory obligations of a mortgage payoff that when combined with closing costs and required set asides to use  up to 100% of the gross principal limit. Here’s an example. Harry Homeowner qualifies for a Gross Principal Limit of $200,000 but has a mortgage payoff of $160,000, a repair set aside of $13,000 and closing costs of $5,000. That’s total mandatory obligations of $158,000 or 89% of the Principal Limit. That’s right, we broke through the 60% first year cap. #2 Cash at closing? Yes, it makes sense for those with access to funds to avoid not only the upfront 2.5% FHA Mortgage Insurance Premium but also younger borrowers who want to reduce the lifetime cost of the loan.

BREAKING: New PLF Tables Published

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Reverse Mortgage Lending Ratios
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When HUD released their expected changes to the Home Equity Conversion Mortgage Program (Mortgage Letter 2013-27), or the federally insured reverse mortgage many asked “Where are the new lending ratios?”. Well the new Principal Limit Factors are here (download PLF Factor Table here).

Important Points to Ponder:

  • Many expected (myself included) that HUD would split the difference in lending ratios between the Standard and Saver. That is not the case. HUD has basically given us a Saver with a graduated upfront Mortgage Insurance Premium based on the percentage of available funds used in the first year. Basically the new Stand-Alone HECM gives 15% less than the standard across all ages and .6% – 8.2% than the Saver based on age.
  • **High Interest Rates spell trouble above 10%. This has been the case since the October 2010 PLF table update but is a little known fact. HUD says that it is not financially feasible to offer HECMs if interest rates reached 10% or higher and reiterates this point in their latest PLF Factor Tables.
  • The product is still viable for those working with financial professionals. While the Saver will cease, it’s introduction opened up the door of using the HECM as a legitimate planning tool. Despite higher upfront MIP charged for those only seeking a line of credit the costs are still negligible and the lending ratios still support a robust line of credit.

FHA to Reexamine MMI Fund Projections

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A Second Look at MMI Fund after Program Changes…

BREAKING:Read Mortgagee Letters 2013-27 & 2013-28 for complete details of changes.

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Mutual Mortgage Insurance Fund A second look at the Mutual Mortgage Insurance Fund is exactly what FHA plans do to after setting the wheels in motion for historic changes to the reverse mortgage. Yes, after committing to eliminating both the Standard and Saver product in lieu of a new one FHA wants another look. It all began in November 2012 when an Actuarial review of the MMI fund found that the reverse mortgage portion accounted for a negative 2.8 billion dollar economic value. Economic value is a better description than losses for these are projected losses based on actuarial analysis and data. In other words, with home values that fell this percent and projected loan balances and appreciation the fund would pay X dollars. Early figures showed the HECM portion of the fund accounted for 2.8 billion in projected losses of the 16 billion dollar overall future shortfall. Later that figure was revised to show projected losses from reverse mortgages totaling $5.2 billion. The dire numbers were too unsettling to ignore. So why the second look at the fund at this stage?

October Surprise?

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Reverse Mortgage Reform Bill Passes, Awaits President’s Signature

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August or October Surprise? FHA may be able to use a scalpel rather than an axe when it comes to making reforms to the federally insured reverse mortgage or Home Equity Conversion Mortgage program. Late last Tuesday night the Senate granted the Federal Housing Administration the authority to make changes via mortgagee letter rather than the lengthly rule making process in passing House Resolution 2167, better known as the Reverse Mortgage Stabilization Act of 2013. Now the bill awaits the President’s signature. This is a pivotal development because without this authority harsher measures may have been employed to protect the American taxpayer and FHA’s mutual mortgage insurance fund from projected losses. It is expected that FHA will issue a mortgagee letter late this month outlining changes with an implementation date of October first. One HUD official said. We are looking at issuing ML by end of August and, ideally, October 1 for implementation.

Scalpel or an Axe? HECM Reforms.

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Without Congressional Authority FHA is Faced with Hard Choices

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Reverse Mortgage News

HUD would prefer to take the surgeon’s approach making fine tuned adjustments to the federally-insured reverse mortgage or HECM program. Presently it is left with the axe of harsh change unless Congress acts to give them the authority needed before the beginning of next fiscal year October 1st. The blunt approach was mentioned in a recent Senate Banking Committee hearing last week when Assistant Secretary of HUD Carol Galante reassured senators that they have no plans to bring back the standard fixed rate product.

Assistant Secretary Galante mentioned another option…more principal limit reductions across the board. “If we can’t make those nuanced changes, we are going to have to say the entire amount [that can be borrowed] is going to be just lowered for everybody across the board.”