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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.