Announced last week, the higher HECM loan limits determined by the Federal Housing Administration have been extended through calendar year 2011. After December 31, however, the fate of the loan limit remains to be seen.
While lenders in high-value home areas are continuing to enjoy the $625,500 limit, many have speculated as to how many loans would actually be impacted should the loan limit revert to $417,000.
The number could be as high as 10% overall for future HECM loans, says Ibis Software Corporation, which analyzed HECM data over the course of the program to find that in several states, the proportion of HECM appraisals coming in over $417,000 was substantial.
“During the brief $417,000 national limit regime, 18% of HECMs were over-collateralized,” wrote Jerry Wagner, Ibis founder, in an email. “In the Spring of 2009 the national limit became $625,500, and the number of over-collateralized HECMs fell to 8%….It appears that going back to the $417,000 national limit will reduce the benefits of 10% of future HECM borrowers.”
Wagner also detailed the impact that the lower loan limit would have on specific states. Even in high-cost areas such as California where homes have lost substantial value, more than 30% of HECM homes have been appraised at more than $417,000 historically. In New York and Washington, D.C., the proportion is similar.
In states with the highest HECM volumes, the impact is mixed. While a change in California would be substantial, in Texas and Florida there were 3.7% and 7.2%, respectively, of loans above the $417,000 limit since the higher loan limit went into effect. New York and New Jersey would see a greater impact, while Illinois, Virginia, Pennsylvania, Arizona and Maryland would suffer less.
Many lenders in areas with high home values have expressed concern over a potential loan limit change, which could come in 2012 barring Congressional intervention. The current loan limit has been extended through December 31, 2011.
Written by Elizabeth Ecker