Day of Reckoning for FHA Loan Limits to Come By Month’s End

A Department of Housing and Urban Development spokesman confirmed today that HUD plans to release guidance on loan limits, including those for reverse mortgages, by the end of the month. The loan limit extension has been an item of debate in Washington and beyond, involving players such as the Federal Housing Administration, members of Congress and vested industry groups.

The loan limits for the Federal Housing Administration’s HECM program were raised from $417,000 to $625,000 in February 2009 and were extended last year, with an expiration date of Oct. 1, 2011.

Congress, which has the authority to intervene and could prevent the higher loan limits from expiring, is in recess through September 5. Other policymakers have weighed in on the issue in recent weeks including two congressmen, John Campbell (R-Calif.) and Rep. Gary Ackerman (D-N.Y.), who introduced a bill aimed at extending the current conforming loan limits for two years. Also in July, HUD Secretary Shaun Donovan told Bloomberg News that the loan limits could return to their pre-crisis levels without taking a toll on the housing market.

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While it remains to be seen whether the loan limits will be extended or will expire, the HUD spokesman confirmed to RMD that the guidance will come by the end of the month.

Many in the reverse mortgage industry have speculated that the loan limit expiration would have a negative impact on lending in areas such as California where many homes are valued above the lower loan limit of $417,000. The National Reverse Mortgage Lenders Association and other trade groups have supported an extension of the loan limits.

Written by Elizabeth Ecker

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  • There is quite a bit that needs to be corrected in this article.  First the lending limit was increased to $625,500 on February 24, 2009 through Mortgagee Letter 2009-07 which implemented the minimum lending limits permitted under the American Recovery and Reinvestment Act of 2009 (also known as “ARRA,” enacted on February 17, 2009 as P.L. 111-5).
     
    Although it is consistent with prior policy, there is nothing yet in writing which states:  “The current loan limit is effective for all FHA reverse mortgages that have been assigned case numbers through September 30, 2011.”  Let’s hope we will not have to deal with any transition rule because Congress does the right thing and extends the current lending limits until at least October 1, 2013.

      • Elizabeth,

        What is really good about the article is the reminder that originators need to pay attention to what will be occurring over the next 43 or so days.  Legislative options on the lending limit are few unless Congress sets some things aside which is doubtful.

        Whether content in my comment or your article is 100% accurate or not is the responsibility of originators to research and keep current on.  So I fully support what you did.

        We need to be kept on our toes.

  • There is quite a bit that needs to be corrected in this article.  First the lending limit was increased to $625,500 on February 24, 2009 through Mortgagee Letter 2009-07 which implemented the minimum lending limits permitted under the American Recovery and Reinvestment Act of 2009 (also known as “ARRA,” enacted on February 17, 2009 as P.L. 111-5).
     
    Although it is consistent with prior policy, there is nothing yet in writing which states:  “The current loan limit is effective for all FHA reverse mortgages that have been assigned case numbers through September 30, 2011.”  Let’s hope we will not have to deal with any transition rule because Congress does the right thing and extends the current lending limits until at least October 1, 2013.

  • So, the FHA loan maximum is cut by 33%. It certainly won’t affect anyone here in Ohio. Our average FHA loans are in the low hundred thousand range. It would be interesting to know how many people are actually affected by this. The home values in many expensive places like California fell by 25% anyway.

    • Mr. Novak,

      I suggest you look at the July 7th RMD article on the subject.  The three places it will impact the most are CA, NY, and DC.  For California over 45% of all HECMs in 2009 had Maximum Claim Amounts (“MCAs”) greater than $417,000.  From there it reached 55% in 2010 and is now around 50%.  NY started at 40% in 2009 and has been at 43% ever since.  DC went from 32% in 2009 and to 40% in 2010.  DC is about 49% in 2011.

    • Mr. Novak,

      I suggest you look at the July 7th RMD article on the subject.  The three places it will impact the most are CA, NY, and DC.  For California over 45% of all HECMs in 2009 had Maximum Claim Amounts (“MCAs”) greater than $417,000.  From there it reached 55% in 2010 and is now around 50%.  NY started at 40% in 2009 and has been at 43% ever since.  DC went from 32% in 2009 and to 40% in 2010.  DC is about 49% in 2011.

  • It would be interesting to know the “performance” of FHA insured HECM loans in the $417k + range vs the lower loan amount loans, both on an insurance fund payout basis at the end of the loan term, as well as for T & I defaults.  If the larger loans tend to “perform” better than the average fromthe perspective of their impact on the FHA insurance fund, then why delete this segment?  On the other hand……

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