NRMLA Co-Signs on Trade Associations’ Request for Loan Limit Extension

Several housing industry trade associations have written a letter seeking a one-year extension of current FHA mortgage loan limits, and National Reverse Mortgage Lenders Association has signed onto the letter, calling the extension “critical” to preserving home values.

The letter, jointly signed by 11 organizations including the Mortgage Bankers of America, the National Association of Home Builders, and the National Association of Realtors, points out the still-weak economy and the fragile housing markets they say “cannot handle a mortgage disruption like lower loan limits.”

The limits are not set to expire until Sept. 30 of this year, but the letter calls for immediate action as it takes time for lenders to adjust underwriting systems to reflect loan limit modifications.

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“While we concur with HUD that it possesses the legal authority to set loan limits for HECM after September 30, we believe extending the higher loan limits for FHA forward mortgages is critical for preserving housing values across the board,” says NRMLA President Peter Bell.

Some lenders have already stopped taking applications at the current limits, the letter reads, fearing the loans won’t close prior to expectation; as a result, home sales have already been disrupted.

The housing inventory will expand if families can’t sell their homes, and other families can’t buy, and this would lead to depressing housing prices even further, the letter continues. And, in chain reaction fashion, this ultimately means a longer time until the housing recovery.

Read the full letter here.

Written by Alyssa Gerace

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  • Why would lenders stop taking loan apps at the higher limits?  Has FHA ever cutoff apps at any time in the last decade based on anything other than the date of case number assignment? 

    After listening to the interview between Ms. Judy Woodruff and Secretary Donovan, we as an industry need to be very concerned that the Secretary has in fact reached the conclusion that HUD needs to reduce the involvement of FHA in the housing market.  He stated that less than 5% of all FHA loans are above the $417,000 limit and higher limits should be allowed to terminate on October 1, 2011.  He believes that by this action, non-governmental related mortgage lending will increase. 

    Without the support of HUD, chances of all FHA lending limits increased by the Obama Stimulus Package (ARRA of 2009) being reduced are great.  Despite the opinion of Representative Frank, Congress may not act and we will see lower limits on October 1. The $417,000 lending limit for the contiguous US states was manufactured by HUD in ML 2008-35.  HERA never specified such a lending limit.  In fact the maximum lending limits permitted by HERA are reflected by FHFA in the Freddie Mac lending limits.  They are in fact county by county as they have always been.   

    A single national lending limit created by law is a figment of imagination which was creatively expressed in ML 2009-07:  “To avoid potential cases where a claim could be less than the national limit, as adjusted for the special exception areas, HUD had decided not to make the adjustment.”  That is regulatory speak for saying we have decided not to raise lending limits to the maximums permitted by law.   

    12 USC 1715z-20(g) allows HUD the right to use a lower lending limit than the maximums available by law in stating:  “In no case may the benefits of insurance under this section exceed the maximum dollar amount limitation established under section 305(a)(2) of the Federal Home Loan Mortgage Corporation Act for a 1-family residence.”  It has been stated that HUD may raise the lending limits under ML 2008-36 in some counties but not necessarily to the maximums permitted by law.

    • Tom,

      Please cite your information source.  That is a very interesting stat.

      The only direct risk to HUD from defaults on taxes and insurance comes from HECM borrowers who have defaulted after assignment.  Before assignment it is generally the risk of the owner, such as Fannie Mae, or the lender where the lender has agreed to retain that risk such as through issuer agreement with Ginnie Mae on HMBSs.

      A lowering of the cap usually means less HECMs and also means that homes with higher values will have less chance of the balances due exceeding the value of the home at termination if the owners gets the mortgage despite lower available proceeds.

      As to lower value homes, they stay in the program no matter what.  That is how the program was designed.

  • Everyone is looking only on the obvious and on the surface efforts of Wells Fargo to increase their profits. It appears no one is looking at  WF successful efforts to reduce contract payments to the average Reverse Mortgage customer. In addition
    to reducing the payments they can now take over the RM property years early without fear of reprisal by HUD who has given them the means to perpetrate this fraud against the senior citizens.

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