The Department of Housing and Urban Development is making more proceeds available for some reverse mortgage borrowers, under new principal limit factors (PLFs) released Friday.
The new PLF tables now include figures for ages under 62 following a decision by HUD to allow for non-borrowing spouses of new reverse mortgage borrowers after August 3 to remain in their homes following the passing away of the borrower, under certain terms and conditions. The PLFs reflect loans for borrowers who are age 62 and older, but also loans for married couples where one borrower does not meet the traditional 62 year old age requirement.
A “special table” now includes PLFs for loans where one of the parties is age 18 to 61.
The new tables also make the Home Equity Conversion Mortgage program more sensitive to interest rates than previously.
“The biggest impact of these updated tables will be the reductions in PLF for higher interest rate scenarios, making the HECM market more sensitive to interest rates than it is currently,” says John Lunde, president and co-founder of Reverse Market Insight. “Right now home price appreciation is the biggest factor behind HECM to HECM refinance volume, and while that is likely still the case these new tables put more of a balance in place between home price appreciation and interest rates.”
HUD announced the new PLF tables via Mortgagee Letter 2014-12 on Friday, noting the change since last year’s PLF update. The new factors will go into effect as of August 4, 2014. However, the agency also specifies that lenders allow borrowers who have not yet closed on their mortgages but have FHA case numbers assigned prior to the effective date of Mortgagee Letter, to elect to use the PLFs announced Friday.
“The new Principal Limit Factor (PLF) tables have been wholly revised and now also include PLFs for use where the Borrower has a Non-Borrowing Spouse younger than 62,” HUD writes in its description.
Last year the agency slashed PLFs, resulting in a roughly 15% cut across the board for all borrowers. The newest change raises the amount of proceeds for the older spectrum of borrowers in a lower rate environment, but reduces PLFs for most borrowers in a higher rate environment.
The shift in the latest tables adjust depending on age and rate, resulting in different impacts versus the 2013 PLFs. PLFs increase in a lower interest rate environment whereas they will decline materially as rates rise.
For those on the younger end of the age spectrum, PLFs are reduced slightly versus the 2013 tables. At an interest rate of 5%, they increase for those who are 64 and older. At an interest rate of 6%, those who are 78 and older will see greater principal limits versus the previous table.
Chart courtesy of Ibis Software.
“The older people benefit more,” said Jerry Wagner of Ibis Software. “The new PLFs are much more leery of rising rates.”