Future of HECM Loan Limits “Under Review” says HUD

Unless Congress takes action, loan limits for mortgages insured by the Federal Housing Administration will likely decline in 669 of the 3,334 counties in the United States, according to an analysis brief published last week by the Department of Housing and Urban Development.

After seeing the financial markets start to unravel, Congress stepped in and temporarily increased the size of the loans the government agency could insure in 2008. Barring Congressional action, FHA loan limits will revert back to loan limits determined under the Housing and Economic Recovery Act on or after October 1, 2011.

According to the report, approximately 3% of loans (33,301) and 6% by dollar volume ($14.2 billion) endorsed would not have closed if HERA limits had been in effect during 2010. In calendar year 2011 to date (January through April), approximately 2% of endorsed loans by count (6,673) and 7% by dollar volume ($2.8 billion) would have been affected.

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Several trade groups have urged Congress not to reduce loan limits at this time, fearing it would reduce the availability of mortgage loans across the country and increase the cost of capital to consumers.

“Allowing the current loan limits to decrease will have an immediate negative impact on mortgage availability,” said Ron Phipps, President of the National Association of Realtors during testimony before the House Financial Services Subcommittee on Insurance, Housing and Community Opportunity last week. “FHA has played a critical role in holding down mortgage rates. Without FHA, the higher mortgage rates paid by consumers would flow into noncompetitive banks that are too big to fail.”

It’s unclear whether loan limits for FHA’s Home Equity Conversion Mortgage (HECM) program will remain at $625,500 at the start of fiscal year 2012.

“Loan limits for the FHA reverse mortgage program, the Home Equity Conversion Mortgage (HECM), are established under separate legal authority from loan limits for the forward loan program,” said the report. “Loan limits beginning on October 1, 2011 for HECM loans are currently under review and additional guidance will be provided in a subsequent communication to borrowers and the industry.”

HERA stipulated that HECM loans insured on or after November 6, 2008 will have a loan limit equal to the national conforming limit. For high-cost areas, the mortgage limits for HECM was allowed to increase up to 115% or $625,500—whichever is less.

Currently, reverse mortgages insured by FHA have a maximum loan limit of $625,500. The higher loan limit was established by Congress when it enacted the American Recovery and Reinvestment Act (ARRA) in February 2009.

If HECM loan limits do decrease, it’s likely they will fall back to $417,000, the national conforming loan limit in 2008.

View a copy of the report.

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  • Mortgagee Letter 2008-35 needs to be rescinded, rewritten, and reissued before October 1, 2011.  This ML is potentially far more reaching and detrimental to more seniors than even ML 2008-38 (the now rescinded non-recourse ML).

    It is good HUD has it under review but it needs to reflect the law as it now stands not what some might believe the intent of Congress might have been in the spring and summer of 2008.  The HUD position expressed in ML 2008-35 is similar to the position HUD took on the spouse displacement rule of 12 USC 1715z-20(j).  Congress has not initiated any amendment on either provision and one must ask why HUD did not get the law amended to have the law read the way HUD wants it to read.  HUD has had the time and the resources necessary to have gotten both of those provisions amended by now.

    The confusion expressed in the article is only a reflection of the confusion expressed not only in the hyperlinked report but also in ML 2008-35 itself when read in conjunction with the statute.  The author is as sharp as ever but his disciplined approach in summarizing the report is a reflection of the confusion expressed in the report about HECMs.

    HUD needs to rewrite ML 2008-35 and issue a new ML, reflecting the statute before October 1 arrives.

  • Mr. Shearer,
     
    There are two issues here:  One is a Congressional issue to which you appeal and the other is a HUD determination matter.  While it is always a good idea to write those in Congress on such matters, in this case understanding the flaws in Mortgagee Letter 2008-35 and writing the HUD legal staff about how the HECM lending limits should be determined based on HERA could end up meaning far more.
     
    Congress could end up providing a new lending limit of $550,000 as individuals like Mr. Peter Bell have stated in the past.  That is $75,500 LOWER than mandated by HERA utilizing the statute and the Freddie Mac interpretation of those lending limits applied to almost all California coastal communities as well as many other areas in the country particularly communities on the Atlantic Coast.
     
    While your appeal to your fellow Californians is most sincere, it is seriously flawed.  The California Representatives are primarily Democrats with almost no voice in the House and in the current structure of the Senate, the voices of our two California Democratic Senators are all but lost.
     
    Beyond that how many letters would result from your appeal?  It would be surprising if there are even 2,000 working full-time in the industry here in California.  2,000 is probably an exaggeration when one remembers that the total endorsement production related to California homes will be less than 15,000 (perhaps not even 9,000) for the current fiscal year and most likely next.
     
    The opinion expressed by Mr. Bell last year is most likely still valid; however, as Mr. Bell warned Congress might also give us something closer to $417,000 if they do anything at all.  Those in Congress get tens (if not hundreds) of thousands of emails, letters, and other types of correspondence each year.  The same is not true of the legal staff at HUD.  The HUD legal staff has in their hands the means to give a far higher lending limit to many senior homeowners in the contiguous states.

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