Jumbo Reverse Mortgage

A jumbo loan is by definition a home loan that is more than the amount that the FHA is willing to insure. The FHA sets maximum loan amounts by geographical region, which are based on the median home price for the area. Since the HUD reverse mortgage program is tied to a formula based on FHA limits, jumbo reverse mortgages are in theory not possible.

However there are several bills pending in Congress that will change the home loan landscape. One of them will change the formula that the FHA uses to set the maximum on conforming loan limits. Instead of a formula that allows lesser sums, the legislation proposes that the agency use 100% of a statistical area’s median home price. In the Silicon Valley area of California, that would drive the maximum conforming loan value up over $300,000 – from the current FHA maximum for high end loans to $788,000 – the median home price in San Jose and environs.

There is another bill pending that would use the FHA’s maximum conforming loan amount as the maximum amount available for HUD insured reverse mortgages. Since 90% of all reverse mortgages are passed through HUD, the new figure would govern virtually all of the market. Currently the maximum conforming loan for the FHA in any region is $417,000, which would be a healthy increase from the maximum now available through the HUD reverse mortgage program – $362,260.

That is an example of a potential hike in reverse mortgage limits, although it does not exactly reach jumbo status. If, however, the reverse mortgage program at HUD follows – or is directed to follow – the proposed new rules that would govern FHA loans, the increase in available funds to reverse mortgage borrowers would indeed meet the “jumbo” characterization.

That would be true only in the most expensive housing markets, but there are plenty of seniors who own homes that were modest when they were purchased and are now valued in the high six figures simply because of their location. It makes eminent good sense that people who own valuable homes should not be limited to a reverse mortgage worth less than half of their home’s current appraised worth.

The House of Representatives had a flock of bills introduced last year to modernize the FHA and its lending procedures –and limits. At the same time, Washington is beginning to recognize that reverse mortgages are going to provide partial relief to the worsening shortfall in Social Security and Medicare services. For that reason you may expect a good deal of attention paid to revamping the ceilings set on reverse mortgages by both HUD and Fannie Mae. In the not so distant future, you may see loans that are still eligible for HUD insurance and purchase, but that have attained “jumbo” amounts.

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