Late last week, the U.S. Department of Housing and Urban Development (HUD) announced changes in the lending limit for federally-backed reverse mortgages, with the new maximum claim amount for 2019 set at $726,525. This represents both an increase for a third consecutive year, and a welcome development for many reverse mortgage originators who have contended with changes to principal limit factors handed down to the Home Equity Conversion Mortgage (HECM) program in October, 2017.
“This increase can only help folks who have higher home values and a large mortgage. Now there will be more people who will qualify for a HECM since there will be enough Net Principal Limit to pay off their mortgages,” said industry expert Shelley Giordano of the Funding Longevity Task Force at the American College of Financial Services.
“In addition, as our industry continues its outreach to Main Street America, a higher loan limit allows us to appeal to those who enjoy financial well-being and who will provide sound collateral for the HECM in the form of high value real estate,” she said.
“The sum of the 2019 MCA increase and the past year’s appreciation means that there is over a 12 percent increase in value that can be used to calculate principal limits,” said Scott Harmes, national manager at C2 Reverse Mortgage in San Diego, Calif.
“In many markets with the heaviest concentration of reverse mortgage activity, appreciation levels have been higher than the 5.5 percent national appreciation figure; this means senior homeowners have recovered the ability to tap significantly more home equity than they could in the aftermath of the October 2, 2017 drop in HECM principal limit factors and floor rate,” he said.
At least one originator believes the news to be generally positive even if it may not represent a sweeping change to the way current business is conducted.
“The increased loan limit is welcome news. The change itself will not be overly significant but FHA making any positive change in the HECM program hopefully reveals their positive intentions for the program,” said Mac Tennant, CRMP at Access Reverse Mortgage in Clearwater, Fla. “From FHA’s perspective, higher priced homes give them more initial mortgage insurance premium (IMIP) and possibly more astute borrowers,” he said.
Other originators see the increased lending limit as generally positive, but not a particularly noteworthy development for those who operate in regions of the country with lower property values.
“I don’t think that [a rise in the lending limit] will have much of an impact on me,” said Mike Peerless, Reverse Mortgage Director at Holland Financial Services in Clearwater, Fla. “Most of my loans have appraised value homes in the range of $200,000-$400,000, but who knows what 2019 will bring? I will be focusing on realtors and maybe some of them have a niche on the higher-end homes,” he said.
Peerless is not alone in seeing the raised lending limit as having a potentially negligible impact on reverse mortgage volume in regions with lower property values.
“It’s great news for the high value markets but does little to help the majority of the country that has been hard hit by the recent changes to the HECM programs over the last 12-14 months,” said Rich Pinnell, CRMP at Vitek Mortgage Group in Redding, Calif.
Written by Chris Clow