Reverse Mortgage Loan Limits To Rise By More Than $365,000

by Peter G. Miller
February 8th, 2008

Seniors with large homes who have been waiting for higher loan limits will be pleased to know that the Congress has effectively doubled the FHA loan limit, meaning that far-larger FHA reverse mortgages (HECMs) are about to become available.

The old FHA loan limit was $362,790 in the lower 48 states. The stimulus package passed by Congress increases the FHA mortgage limit to as much as $729,750 for single-family homes in “high-cost” areas according to the San Jose Mercury News. Since an estimated 90 percent of all reverse mortgages are insured under the FHA HECM program, this means that vastly-larger loans will be available through reverse mortgage financing under the new standard.

All of this assumes, of course, that the President will sign the bill.

The new limit erases any loan limit difference between FHA mortgages and conventional financing.

As is always the case with reverse mortgages, shop around to get the best rates and terms and consult with an attorney who specializes in elder law before signing any paperwork.

  •  | 
  •  | 

 

4 Responses to “Reverse Mortgage Loan Limits To Rise By More Than $365,000”

  1. John Pecha Says:

    Peter,

    I believe the effect will only be with FHA loans and not with 203b lending limits for HECM’s. They left that out of the stimulus package. Raising the 203b limits is a real proposal and will be decided shortly, but this stimulus package did not approve the raising of 203b county lending limits.

  2. John Pecha Says:

    Peter,

    Here is a copy of a report from NRMLA:

    Legislative Update & FHA Modernization

    FHA Modernization Commentary from Peter Bell at NRMLA:

    Ever since Congress returned from the New Year’s recess, there has been a lot of discussion on the FHA Modernization bill. As you know, the House passed its version of this in September and the Senate passed its version just prior to adjourning for Christmas. As far as HECM goes, both versions contain essentially the same provisions. There are other areas in which the two versions of the bill differ that need to be sorted out.

    With great concern about the overall economy and particular political sentiment to respond to the subprime crisis, it appeared late last week that FHA modernization might be rolled into the economic stimulus package. In the end, however, the final version of the stimulus package passed by the House of Representatives dropped all of the FHA provisions other than loan limits. It includes only an increase in loan limits for Fannie Mae, Freddie Mac and FHA to 125% of the area median home price, but no other FHA amendments. This loan limit increase would not apply to HECM, as far as I can tell.

    All other aspects of FHA Modernization, including the several HECM provisions, remain to be part of the package that must still be negotiated in conference. While the conference on FHA modernization could occur at any time now, my guess is that it will not be concluded until after the stimulus package is enacted.

    Once FHA modernization is sorted out in conference, the compromise (known as the “conference report”) is approved by both the House and the Senate, and the President signs the bill into law, HUD would then issue Mortgagee Letters to implement the provisions of the bill. A first Mortgagee Letter, expected 30-60 days after the bill is signed into law, would implement the new loan limits and origination fee limitation. I also understand that the Department is giving serious consideration to simultaneously raising the floor on the maximum origination fee from the current $2,000 level. Subsequent Mortgagee Letters will implement the coop and home purchase provisions.

    I understand that some NRMLA members are upset about the new origination fee limitation. As you know, AARP, which is about as formidable an advocate as there can be in Washington, has been expressing its concern about HECM costs for years and, with loan limits about to be significantly increased, felt that now was the time to act. Key legislators brought AARP and the trade association together for some very spirited negotiations. AARP’s initial proposal was far more severe, but as the trade association provided industry perspective, they became more receptive to a compromise.

    In the end, those who took part in the negotiations feel that the compromise is acceptable and the reverse mortgage industry will benefit in many ways: the higher loan limits, permanent elimination of the endorsement cap, and additional business opportunities in coops and home purchases can generate business growth to compensate for reduced fees. Furthermore, HUD is considering a significant increase in the origination fee floor, helping to produce loans on lower value homes. Finally, the new law would give the Secretary the authority to change the fee limit, if it is determined necessary to do so.

  3. Dennis Says:

    Paul- Here is the HR 5140 provision of the bill that has to deal with FHA loans. As you can see they kept out 255(g), the HECM’s. It sounds like they are waiting for the FHA Modernization Bill to increase the lending limit.

    SEC. 202. TEMPORARY LOAN LIMIT INCREASE FOR FHA.
    (a) Increase of High-Cost Area Limit- For mortgages for which the mortgagee has issued credit approval for the borrower on or before December 31, 2008, subparagraph (A) of section 203(b)(2) of the National Housing Act (12 U.S.C. 1709(b)(2)(A)) shall be considered (except for purposes of section 255(g) of such Act (12 U.S.C. 1715z-20(g))) to require that a mortgage shall involve a principal obligation in an amount that does not exceed the lesser of–

    (1) in the case of a 1-family residence, 125 percent of the median 1-family house price in the area, as determined by the Secretary; and in the case of a 2-, 3-, or 4-family residence, the percentage of such median price that bears the same ratio to such median price as the dollar amount limitation determined for 2008 under section 305(a)(2) of the Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1454(a)(2)) for a 2-, 3-, or 4-family residence, respectively, bears to the dollar amount limitation determined for 2008 under such section for a 1-family residence; or

    (2) 175 percent of the dollar amount limitation determined for 2008 under such section 305(a)(2) for a residence of the applicable size (without regard to any authority to increase such limitation with respect to properties located in Alaska, Guam, Hawaii, or the Virgin Islands);
    except that the dollar amount limitation in effect under this subsection for any size residence for any area shall not be less than the greater of (A) the dollar amount limitation in effect under such section 203(b)(2) for the area on October 21, 1998; or (B) 65 percent of the dollar amount limitation determined for 2008 under such section 305(a)(2) for a residence of the applicable size. Any reference in this subsection to dollar amount limitations in effect under section 305 (a)(2) of the Federal Home Loan Mortgage Corporation Act means such limitations as in effect without regard to any increase in such limitation pursuant to section 201 of this title.
    (b) Discretionary Authority- If the Secretary of Housing and Urban Development determines that market conditions warrant such an increase, the Secretary may, for the period that begins upon the date of the enactment of this Act and ends at the end of the date specified in subsection (a), increase the maximum dollar amount limitation determined pursuant to subsection (a) with respect to any particular size or sizes of residences, or with respect to residences located in any particular area or areas, to an amount that does not exceed the maximum dollar amount then otherwise in effect pursuant to subsection (a) for such size residence, or for such area (if applicable), by not more than $100,000.
    (c) Publication of Area Median Prices and Loan Limits- The Secretary of Housing and Urban Development shall publish the median house prices and mortgage principal obligation limits, as revised pursuant to this section, for all areas as soon as practicable, but in no case more than 30 days after the date of the enactment of this Act. With respect to existing areas for which the Secretary has not established area median prices before such date of enactment, the Secretary may rely on existing commercial data in determining area median prices and calculating such revised principal obligation limits

  4. george wyman Says:

    Is there any indication when the conference on the FHA modernization bill will take place? Now that the stimulus bill has been signed, it seems the conference should take place fairly soon. I have yet to hear anything about it.