[Updated] Reverse Mortgage Lending Limit To Rise in 2019

The lending limit for federally-backed reverse mortgages is increasing for the third consecutive year in a row and is set to rise to $726,525 in 2019.

The Department of Housing and Urban Development (HUD) announced on Friday via Mortgagee Letter 2018-12 a maximum claim amount of $726,525 for calendar year 2019, up from $679,650 in 2018.

HUD calculates this figure at 150 percent of the conforming loan limits on mortgages to be acquired by Fannie Mae and Freddie Mac, which was announced by the Federal Housing Finance Agency (FHFA) late last month to be $484,350 for calendar year 2019—up from $453,100 in 2018.

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HUD also specifies that the new maximum claim amount is applicable to Freddie Mac’s special exception areas, which includes Alaska, Hawaii, Guam, and the Virgin Islands.

The reverse mortgage industry response was favorable. “We welcome the news that the HECM loan limits will increase in 2019,” said Steve Irwin, EVP of the National Reverse Mortgage Lenders Association (NRMLA).

In a year introducing so many proprietary jumbo products, the new limit will likely not have a pronounced impact, says John Lunde, president of Reverse Market Insight. “It’s always a net positive for HECM volumes with the lending limits rising,” he said. “I also don’t see the increase as significant enough to change the attractiveness of proprietary products for lenders or borrowers, so I’d say it’s a net positive although a modest one.”

For several years, the reverse mortgage lending limit remained stagnant, before rising in 2017 from $625,500 to $636,150. The new loan limit will take effect for loans with case numbers assigned on or after January 1, 2019, through December 31, 2019, as specified by HUD.

HUD also released the lending limits for forward mortgages in Mortgagee Letter 2018-11, which divides the limits between low- and high-cost areas and property unit numbers. In low-cost areas, the limits range from $314,827 for one-unit and $605,525 for four-unit.

In high-cost areas, the limits start at $726,525 for one-unit to $1,397,400 for four-unit. In the same special exception areas, the limits start at $1,089,787 for one-unit and go to $2,096,100 for four-unit.

For more detailed information about the new limits, check out HUD’s Mortgagee Letter 2018-12 and its loan limits page.

Written by Elizabeth Ecker and Chris Clow

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  • As an originator, I am more than happy to see this increase. It is a head-scratcher, however, given that HUD apparently is still seeking the reason(s) behind the HECM program’s fiscal difficulties.

    Adding larger logs to the fire before that fire has been “contained” seems a bit counter-intuitive.

  • Can’t help but thinking how encouraging this substantive rise in the limit would be without the “October Change” of lowering the PLF.

    I refinanced a year and a half ago at $600,000, (just before the “October Change”), and today the property (and this is from observing neighborhood comps) would sell for $700,000 on the actual market in a multi-offer bid-up (which is holding in the norm for this market- Boston area).

    Two problems: one is HUD’s new appraisal change, where HUD is deliberately trying to knock-down even conservative-appropriate appraisal values (probably making it more difficult (“ify”) to obtain a 700k+ appraisal).

    The other problem, of course, is, even with a good-to-go appraisal, I’d have to refinance at the vastly inferior terms of the post “October Change” PLF.

    Maybe HUD will wake-up and realize that these changes aren’t helping the situation, only making it worse.

    Maybe, HUD will decide to try a “volume oriented” solution and restore the HECM terms to the pre-“October Change” / “Appraisal Change” level; possibly enhancing the PLF to make the program more attractive.

    After all, just from applying ordinary logic, alone, the “Financial Assessment” change was the only change that makes sense with regard to HUD’s intended solution, imo.

  • I see this as a positive, just like Melinda said, WOW!

    I know the increase is not meant to compete with the propitiatory Jumbo, but it does show the industry that HUD still has the confidence in the HECM.

    We need all the encouragement we can get. Also, this will help, you are looking at a $100,000 increase for 2019 in the maximum claim amount, over what it was.

    This will help those homes that peaked out with the HECM in 2018. Those same senior homeowners could have wound up with $42,000 to $49,000 more in gross principle limit if the maximum claim was $726,525 in 2018!

    As I said in the beginning, I see it as a positive move!!

    John A. Smaldone
    http://www.hanover-financial.com

    • “…you are looking at a $100,000 increase for 2019 in the maximum claim amount, over what it was.”

      John, can you clarify the above statement? 2018 MCA max was $679,650 and it for 2019 it will be $726,525…

    • John,

      Don’t feel too bad, I just read an article at a competing reverse mortgage publication and they determined that the increase was over $50,000. It seems many in this industry do not understand simple math or basic math logic.

      The increase is $726,525 less $679,650, which is $46,875. So if the applicable PLF was 0.483 and the home was worth $800,000 on 1/1/2018 and will be worth about $850,000 on 1/1/2019, the increase in the PLF will be $22,640 (or a principal limit of $350,911 less one of $328,271). An increased principal limit of less than $23,000 is a lot less than your $42,000 to $49,000.

  • The state with the greatest HECM endorsement activity year and year after fiscal 2008 is California. Its percentage of endorsements for 2018 was 22.7%. That percentage is greater than the percentages for Florida (second with 8.4%), Texas (third with 7.4%), and Colorado (fourth with 5.9%) combined at 21.7%.

    The majority of the communities in California with homes having median values above $679,650 also have seen high appreciation rates over the last seven years. So if this encourages more of the homeowners in California with home values between $679,650 and $726,526 to obtain HECMs using homes in that value range as collateral, then chances are the risk of loss as compared to the remaining collateral in the cohort of HECMs getting endorsed in calendar 2019 should be lower since these homes have the highest initial MIP.

    As in California there are few homes with values exceeding $679,650 nationally that are in communities where home appreciation rates has been low or negative in the last seven years. So if anything bringing more homes with values over $679,650 into the cohort of HECMs endorsed in fiscal 2019 should help the loss scenario for that cohort of HECMs.

  • The higher the limit, the more attractive the HECM becomes for homes that exceed the limit. These are, dollar-for-dollar, lower risk loans for FHA. At the same time, they produce the highest up-front contribution in mortgage premiums. I like the decision, and hope this is one step closer to program sustainability.

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