Reverse Mortgage Rates – December, 30 2008

The 10-year Constant Maturity Treasury fell another 4 bp today to 2.10% — another record low. We’re in territory where the Principal Limit is maxed out, and the SFSA and tenure conversion factors are the only things moving with rates. Lower rates mean less money since lower rates give higher SFSA’s. This week a Treasury HECM+225 gives $144 more than a HECM+200 (all from a lower SFSA).

This week, all Treasury-based HECM’s with a margin of +338 or less will pay the HECM maximum benefits. Ditto for LIBOR-based HECM’s with margins of +303 or less.  The rates as of 12/30/08 are:

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And, some HECM lending limits are going to change on New Year’s Day:

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Reverse Mortgage Rate Updates are brought to you by Jerry Wagner & Ibis Reverse Mortgage Software – The Industry Standard Since 1995. This is not just a slogan — six of the top 10 reverse mortgage originators plus NRMLA and the AARP use Ibis Software for their websites, retail and wholesale businesses.

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  • I’m a potential reverse mortgage (RM) borrower,living in NYC. (I am not connected in any way to the RM industry). QUESTION: wouldn’t it help the sagging housing market if higher RM limit loans (above 417K)in places like NYC,LA, etc, could be made? Then some borrowers could pay off any existing mortgage loan balances,which would put money into the bank lenders accounts, who then could lend it out again (hopefully to those with worthy credit). Would not those banks be happier having more money paid back faster (builds reserves), or would they lose out on the perhaps better old mortgage’s higher rate income stream? Also, maybe some of the LA/NY RM lenders would use the money to purchase second homes? What about people buying Long Term Care insurance with RM monies so maybe the kids don’t have to sell the deceased parent/borrower’s home?
    (Of course there are other uses for the RM money
    for protecting ones self and ones heirs, not just blowing it in Las Vegas.) Oh, by the way, the Government (which is really all of us) could possibly benefit from this additional cash flowing through the economy. Am I wrong?

  • Thank you for your questions regarding Reverse Mortgages in NYC. Recently HUD has made changes and is continuing to make changes to the HECM program. When the FHA Modification bill was passed in Sept. it had a provision in it for higher limits for high cost areas such as NYC and CA. There was a discrepancy in the amount between the Senate and Congress. Recent information from NRMLA indicates that we may see these higher cost limits in place by sometime next year. However, since this must come from HUD we are not sure of the time. I have been doing Reverse Mortgages for 15 years and I cannot agree more with your comments. So many more people could be helped if we had these higher limits and also coops. (Please note we anticipate coops to be available with the HECM product also sometime next year.) Should you wish for me to keep you updated with the upgrades in the industry please do not hesitate to email me @ vwhite2@metlife.com or you may call me directly @ 917-696-3613.
    Thank you again.

  • dduck,

    Until a few months ago, several lenders offered reverse mortgages designed for homes with much higher values (at least one of which offered them for homes with values up to $20,000,000). Of course the amount of money that a lender will lend on these values is generally much lower than the actual values of the related homes and is based on several factors including the borrower’s age, home value, and, in some cases, an interest rate. Due to secondary market conditions, these lenders have stopped offering “jumbos.” Several have promised to reintroduce them in the near future. Although these reverse mortgages are commonly called jumbo reverse mortgages, they are, in fact, proprietary reverse mortgages. “Jumbos” are not governed by FHA and FHA does not insure them.

    Despite rumors to the contrary, HUD has absolutely no interest in increasing lending limits within the contiguous 48 states at this time. Anyone who states otherwise should be asked for written evidence from HUD or any of its officials. HUD has issued its decision on this issue in a Mortgagee Letter 2008-35 which you will find at http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/08-35ml.doc

    Things can change with the new administration but none of us expect any action on this issue until at least mid to late spring, if at all. Per one HUD employee, Daniel Mooney, HUD legal staff was adamant that the new law should be applied as presented in the Mortgagee Letter. Many of us see things differently. What we are sure about is that for 2009 even if the most lenient reading of HERA (the Housing and Economic Recovery Act of 2008, Public Law 110-289) is instituted the highest value a home could have in the maximum loan proceeds calculation is $625,500 which although a substantial improvement is still significantly lower than many home values along the coasts and in many, many other areas in the US.

    The trouble is, neither the HECM program itself nor FHA insurance were designed to incorporate homes with higher values. The current head of the FHA has declared on several occasions his intention to never allow higher limits than those permitted in Mortgagee Letter 2008-35.

    I believe many in government and many lenders would love to do as you suggest but to accomplish that, a substantial revision would have to be made by Congress to the HECM program. I hope that addresses your questions.

  • Jean Lane,

    The authors of this article did a great job answering your questions awhile back. SFSA stands for “Service Fee Set Aside.”

    Currently a HECM can never have a principal limit greater than the principal limit produced when the expected interest rate is 5.56%. This interest rate is called the floor and produces the maximum gross proceeds available under the HECM program.

    However, the gross principal limit (i.e., the principal limit) must be reduced by several items to determine the net proceeds available to borrowers, one of which is the SFSA.

    Unlike the principal limit, the SFSA has no floor. It becomes larger as the expected interest rate goes lower.

    So for example, if the principal limit is $150,000 when the expected interest rate is 5.56% and the SFSA is $4,800, the principal limit will still be $150,000 when the expected interest rate is 5.2% but the SFSA will be greater than $4,800, say $5,100. Using these numbers and assuming all other relevant items stay the same at both interest rates, the net available proceeds would be $300 less when the expected interest rate is 5.2% than when that rate is 5.56%. I hope that helps.

  • Thank you all for the information you took to provide in the above posts.
    It’s too bad if the limits are not raised in the 48 and someone in Hawaii has the them. Oh, well we can hope for parity some day.
    Happy New Year, and again thanks.

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