Reverse Mortgage Provision Included In Final Text of Stimulus Bill

I received a handful of emails over the weekend asking for the actual text of The American Recovery and Reinvestment Act of 2009.  It sounds like there was rumors floating around that the reverse mortgage provision was removed but according to the text posted on the White House website it’s still included.  See below:

SEC. 1204. FHA REVERSE MORTGAGE LOAN LIMITS FOR 2009.

For mortgages for which the mortgagee issues credit approval for the borrower during calendar year 2009, the second sentence of section 255(g) of the National Housing Act (12 U.S.C. 1715z-20(g)) shall be considered to require that in no case may the benefits of insurance under such section 255 exceed 150 percent of the maximum dollar amount in effect under the sixth sentence of section 305(a)(2) of the Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1454(a)(2)).

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The U.S. Government Printing Office has published the final text of the legislation on the White House’s website.  The reverse mortgage provision is in the Conference Report on H.R. 1 (1 of 5): President Obama is expected to sign the bill into law on Tuesday. 

The American Recovery and Reinvestment Act of 2009

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  • Can you clarify the what this verbage in the American Recovery and Reinvestment Act of 2009 means? (for the layman). Does it have any ramifications in our 2008 or 2009 income taxes?

  • So the president signs the bill today. We are at less than 11 months and counting for how long the increased limit will be available to us. Is there any word from HUD on when we will be able to offer it? Tic-toc.

  • Section 1204, Title XII, Division A of HR 1, presented in the article is not an income tax provision. Provisions changing the Internal Revenue Code are found in Division B of HR 1.

    Some taxes such as the Florida intangibles tax will, of course, be higher with higher principal limits. In certain cases, income tax deductions may be higher but that is a function of having higher maximum claim amounts available for some borrowers and their use of the corresponding higher proceeds.

    So in summary, as the Cynic points out, Section 1204 has no direct impact on income taxes.

  • Will someone please explain to me the reason for an
    arbitrary lending limit. If the value is there, whether the home is worth $50,000 or $5,000,000, what
    difference does it make to the validity of the program. I would think since Reverse Mortgages have been around for over 20 years now, there is plenty of data available to substantiate how well the HUD/FHA
    Insurance program is working. (That even with the decrease in property values in most areas of the Country, the Insurance Fund when Seniors pass and the debt comes due has remained financially solvent.)

  • Mr. Nelson,

    Do you have any information on the number of HECMs that become due as a result of death versus other causes? Seeing that information broken down by causes and by year originated would and then again by year of termination would be fascinating. The trend information would certainly help in marketing. Although possible, it seems highly unlikely most HECMs become due and payable due to death.

    Many have indicated that the average life span of a HECM is between 7 and 11 years. Data for matured HECMs shown by number of calendar quarters outstanding would be helpful. Also having similar data for loans that have not yet matured would be valuable. Do you know if HUD provides it, where it can be obtained?

    Here is the primary problem with your premise; no one knows the market values of the HECM loans outstanding. Further, were the MIP funds received (plus related earnings net of costs) on HECMs originated in 1989 sufficient to pay off the HECMs originated in that year that ended up being foreclosed? The same would be needed for each year thereafter. Or are the MIP fees being collected now being used to pay off foreclosures on HECMs originated in prior years.

    Current solvency is not so much the issue as is whether current funding is adequate to pay off foreclosures currently occurring or that is reasonably expected to occur within the existing pool of HECMs.

    As to the fundamental issue, FHA was never intended to provide mortgages to homes with “significant” values. It was intended to provide financing for homeowners who might have enough income to make mortgage payments but do not have a sufficient down payment and other “marginal” borrowers. Unfortunately lending limits have become a political football. If the mission of FHA changes, then your question needs to be addressed. Right now only Congress can raise lending limits except to reflect permitted increases in home prices.

  • No, I do not; perhaps I should have written “death or other causes” Surely though, HUD/FHA must have these numbers. It just seems to me that a number of Seniors who have homes in the $500,000 to $1,500.000 range with mortgages in the 4, 5, or $600,000 level are
    being shut out from a reverse mortgage when their need is very pressing. I realize this market was formerly serviced by the private “Jumbo” Lenders, prior to the current financial debacle; But as to when those Lenders will return is anybody’s guess. In the last couple of days I’ve talked with two Seniors who are really hurting to make their current forward mortgage payments due to a downturn in their business (Real Estate and Software; home values $800,000 and $1,500,000 with mortgages of $400,000 and $600,000. Selling is not an option in today’s market ). At the same time, I see all parties dickering over a relatively small raise in
    the Lending limits. The genuine success of the FHA HECM program (I believe– but only HUD/FHA has the proof.) should lead those far knowledgeable than I to see the wisdom of allowing this program to serve ALL Seniors regardless of Home value, just as long as the FHA Actuarial Insurance Formula still works. I may be wrong but somewhere along the trail I heard that the FHA HECM program was so financially successful for the Government that a considerable part of the MIP was being sent to the General Revenue Fund; But, I have no proof of that statement.

  • Not to complicate themes but it would/may serve a purpose to allow a HUD based HECM to cover some of those in risk of losing their home to foreclosure but are short to close. One wonders what kind of magic could be worked by those of us that understand our clients the way we do and keeping them, not only in their homes, but possibly protecting the neighborhood’s financial well being at the same time. If the lenders would allow for a quicker decision as to loan modification when a reasonable response with a HUD based reverse mortgage was brought into the mix.

  • In reference to the Cynic’s comments, I did read the article and the corresponding responses. I also read NRMLA’s bulletin on the amount of time it may take to issue the Mortgagee Letter for the new lending limit. While I understand the issues raised of the complexities that HUD is dealing with concerning all of the legislation and regulations that have fallen on them at the same time as the new leadership is trying to get up and running, I would point out that the $625,500 Maximum Claim limit is in affect already in Alaska and Hawaii. At least the issue of the MIP that was raised in NRMLA’s bulletin should have been addressed at the time the higher lending limit was established for those places.

    As for the churning issue and the limiting of the origination fee by HUD, there was no way for borrowers or lenders to foresee the increased lending limit actually passing Congress and being signed into law. In the current financial market, if the borrowers decide they wish to pursue more funds with a reverse mortgage, and the higher lending limit provides them with substantially more in proceeds, are the originators the ones who will again pay the price for the borrowers’ need? Many of us already discount our loans when we are refinancing a HECM.

    Shall we make bricks without straw?

  • Wealthone,

    Loan modification is an avenue that needs exploration. In the next few days, we hope to publish an article on point. Please make sure you read it and add your comments. That article and comments will serve as a basis by which to seek the support of four House members. So please “dig in” and help create a proposal that one of these (one Republican and three Democrats) will hopefully sponsor or co-sponsor.

  • Mr. Nelson,

    Not only have there been rumors about current draining of the fund to pay off losses on FHA forward loans and provide money for the government’s general fund but there are also rumors that some in Congress would like to spend the available cash on their pet projects.

    The available cash is not excess monies. What appears to be in excess are funds held in reserve for future losses in the current outstanding HECM pool. If a significant number of those loans turn into substantial losses where will the money come from to pay off those losses if not, in part, from the cash in excess of current needs????

    Looking at the NRMLA announcement today, it seems FHA is very reluctant to move to $625,500. Some of the logic does not appear founded without some type of actuarial study and analysis of potential loss in values. In fact it seems strange that there would be an argument based on “the cushion” between current market values and yesterday’s lending limit on homes with values over $417,000. That argument was never mentioned as to values in Alaska, Hawaii, Guam, or the Virgin Islands when some of those limits were taken beyond $417,000.

    But there is no need to throw caution to the wind. These arguments need an open forum. For many originators, this is that forum.

    Peter Bell, the NRMLA staff, and the NRMLA HUD Committee are working hard on these issues. They need some space to maneuver in but that should not stop or interfere with the debate over these ideas.

    Your opinion is as good as mine. Mine might be better educated in the need for some independent studies but without them all of the prognostications are pure speculation at best.

  • Amen, Mr. Veale: Just what are the facts; hard to say without real data and objective studies. The powers that be at HUD/FHA should “Open The Books”
    to shed light on how well the FHA HECM Insurance program is working. How well are taxpayers being protected under the current formula. I know Congress and the hard working people at HUD/FHA are to be very proud of how all are coming to the financial rescue of America’s Seniors who are fortunate enough to own home equity. By the way, an early part of my initial explanation of the FHA HECM program to a potential Senior client is: Admirable though the Government may be by providing this program, they are not being just benevolent– Our Country cannot afford to pay for every Senior to go to a nursing home. Helping keep you in your own home, where you really wish to live anyway, instead of having
    to pay for Nursing Home Care will save the American Taxpayer Billions of Dollars. It truly is a Win Win equation.

  • Excuse me how much money will attorneys, CPA, Realtors,Title companies,cities,counties,financial planners,banks with higher margins, hud witgh higher pmi fees, counsler talk for 40 minutes and companie earns 75-125.00.
    . we will have more trusts to review more time explaining programs to cpa’s financial,planners, and familly why we are spending inheritance money. While we will be capped at $6000.00 Reators will get thier 6%, banks will recive higher margins more income. hud 2% $12000.Where is NRMLA Or Namb who fights for us??????????????/

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