The increase of the Home Equity Conversion Mortgage (HECM) lending limit to $822,375 in 2021 will prove to be a boon to opportunities available in the industry, allowing for originators to serve borrowers with higher value properties while also giving the reverse mortgage product category more prominence in the lending space.
However, lending limits higher than $800,000 also have the potential to rekindle conversations concerning possible HECM program reforms that may not be welcome to the industry or those working within it.
These are some of the perspectives shared by reverse mortgage originators across the country in reaction to the news of the higher lending limit, which was announced by the Federal Housing Administration (FHA) last week.
Higher lending limit means more opportunities
In general, the lending limit is likely to be beneficial to borrowers, particularly if they had been mulling over options between a HECM and a proprietary reverse mortgage product according to Christina Harmes Hika, originator with C2 Reverse in San Diego, Calif.
“The new lending limit is really exciting, I think this expansion is going to allow us to help more people,” Harmes Hika tells RMD. “When clients see an FHA HECM next to a jumbo option, they often prefer the HECM’s lower rates and more flexible proceed options. For those in the higher values though, if the HECM doesn’t yield them enough to pay off their existing mortgage or meet their other financial goals, it quickly gets eliminated from the conversation. I think this increase will help keep it on the table for more people.”
The new limit will also bring more awareness to the HECM product, which can help to allow more potential borrowers to consider it, she adds. Additionally, the higher limit will help to further establish the flexibility of the reverse mortgage product category in the wider lending space according to Loren Riddick, national director of reverse lending at Thrive Mortgage, LLC in Alcoa, Tenn.
“I think that it just fuels the fire that we have brewing right now,” Riddick says. “We’re going from the back page to the front page as it relates to the mortgage lending arena.Given the fact that more and more financial planners are incorporating this into their practice, and obviously a lot of financial planning clients have high net worth homes, I think that is exciting, and opens up more opportunities. I believe it’s also going to put a little extra [pressure] on proprietary or portfolio products. I think they will have to keep in stride, and probably there will be a ripple effect.”
How the new limit could interact with private reverse mortgages
With a HECM lending limit now of over $800,000, a natural question that emerges is how 2021 HECMs will interact with the growing proprietary reverse mortgage market designed to serve those with home values well above FHA lending limits. HECMs have the potential to eat into the proprietary market on this front, but that may not be as widespread a concern for some lenders and originators, according to RMD’s outreach.
“Having a lending limit over $800,000 I think will be a benefit to clients,” Harmes Hika says. “People ‘self-sort’ pretty immediately when they see and understand all portfolio and HECM options, I think this will help our borrowers be more in control of the right fit for them, and not so pre-sorted by the limitations of the loans.”
Additionally since Harmes Hika works as a broker who presents multiple options to determine which is the best fit for an individual client, additional ways in which a reverse mortgage can be leveraged is helpful since borrowers’ individual financial situations can vary so much even if two borrowers look similar on paper.
“You can have two borrowers that, on paper, appear the same, but feel completely differently about their relationship with interest rates or their perspectives on leaving an inheritance,” Harmes Hika says. “The more options you can offer, the better you can help both of these clients meet exactly what is right for them. I’ve had a client with a $4 million home choose the HECM over jumbo because of the HECM’s features. No jumbo could match. To him, it was either an FHA HECM or no reverse mortgage at all, since the jumbos just couldn’t’ meet his goals.”
Other concerns: HECM program reforms
Still, the news of the lending limit increase is tempering the expectations of some. Such a high figure could help to revive conversations about HECM program reforms that would not be particularly welcome to the reverse mortgage industry, including those pertaining to the current lending limit structure. This is according to Rich Pinnell, originator with Primary Residential Mortgage, Inc. (PRMI) in Redding, Calif.
“The thing I’m probably most concerned about is whether or not this will drive the conversation about regional loan limits based on where you are,” he says. “I think that’s probably going to be something that happens this coming year in their annual adjustment period towards October. I could see them rolling out something like that, which would really affect the industry, in my view. We’ll just have to see how it goes, because nobody else has to deal with the age metrics. That’s why I like the way the limits are at the top of the pyramid, if you will.”
This concern is relevant especially considering that the Trump administration has previously proposed the institution of regional lending limits as a measure to stabilize the HECM program. Recent statements made by incumbent FHA Commissioner Dana Wade upon the announcement of the new lending limits also seem to indicate that changes remain on the table, since she openly questioned the overall ability for FHA to serve its purpose in light of the lending limit reaching its 2021 level.
“FHA has seen consistent increases in loan limits during the past few years, putting it in a position to serve a segment of borrowers that may be better-served by the conventional [non-agency] market,” Wade said in an announcement of the new limits. “FHA’s mission is to support low-to-moderate income borrowers, so why does the law permit FHA to insure mortgages up to $822,375? This is a question for Congress and the taxpayers who stand behind FHA to answer.”