Reverse Mortgage Business Welcomes Increased 2019 HECM Lending Limits

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.

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“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

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  • One person claims: “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….” When he states that a “5.5 percent national appreciation figure?”

    So where is the substantiation for “over a 12 percent increase in value … to calculate principal limits?” He seems to be saying it is found by adding 5.5% to 6.9% (the percentage increase in the lending limit). That shows a total lack of understanding of how the Maximum Claim Amount (“MCA”) works.

    The increase announced by HUD is not an increase in the MCA. It is an increase in the lending limit. The current MCA is the lesser of the current value of the home or the current lending limit. So if the appreciation rate is 5.5% and the lending limit rose by 6.9%, then it would seem that the increase in MCA is limited to 5.5% up to 6.9% depending on the value of the home at the start of the appreciation rate period.

    So let us look at a series of examples to see how the MCA works. Using a value of the home of $400,000 at the start of the appreciation period then the appreciated value of the home would be $422,000. At the start of the appreciation period, the MCA is $400,000 and at its end $422,000.
    So once again the MCA is lower of the current (appraised) value of the home or the current lending limit.

    If the home was valued at $679,650 at the start of the appreciation period with a 5.5% appreciation rate, the value of the home would have risen to $717,031 which would also be the property’s new MCA. The increase in MCA is $37,381 for a MCA increase of just 5.5%.

    BUT let us say at the start of the appreciation period the home had a value of $800,000. After an appreciation increase of 5.5% it rises to $844,000 but this time the MCA would have gone up from $679,650 to $726,525 for an increase of 6.9%. In this case each time the lending limit is lower than the appraised value of the home.

    As a final example, let us say that the value of the home was $685,000 at the start of the appreciation rate period and at its end, $722,675 which is a rise of 5.5% YET the MCA went from $679,650 to $722,675 for a rise of 6.3%.

    Please explain how an increase of 12% comes into play where the value of the home increased by 5.5% and the lending limit rose by 6.9%? The permitted increase is not 5.5% plus 6.9% but rather it is limited to that specific range in areas where the appreciation rate rose 5.5% of 5.5% to the percentage increase of the lending limit which in this case was 6.9%.

    MCA math is very simple. It is simply a combination of basic math and math logic.

  • I can understand the mixed feelings on the increase, as far as helping those in areas where values do not reach those plateaus.

    However, because the increase helps many in those areas where the home values are relative to the increase, this becomes a very important factor for them.

    Overall, this is a positive for the industry, if it helps some, those are some that would not have hit the books before the increase takes place.

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

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