Reverse mortgage borrowers who have higher value homes and may still find themselves in an economically difficult situation may see the increase in the Home Equity Conversion Mortgage (HECM) lending limit as a very helpful occurrence in the new year, according to one originator. Remaining 2020 reverse mortgage business around the country is also expected to slow, but not in a way that is disruptive.
Part of this stems from a desire on the part of borrowers to wait for higher loan proceeds that could come their way as of January 2021, particularly if they have home values that are higher than the 2020 Home Equity Conversion Mortgage (HECM) lending limit of $765,600. This is according to reverse mortgage loan originators from across the country responding to outreach from RMD.
New lending limit could help a needs-based high-value homeowner
The higher limit has the potential to be able to help those with higher home values who may feel more necessity for additional cash flow than some people might think. This is according to Steven Sless, reverse mortgage division manager with Primary Residential Mortgage, Inc. (PRMI) and branch manager with the lender’s Steven J. Sless Group.
“I think in general when people think of folks living in homes upwards of $800,000 in value, they feel that [those people] must be doing okay,” Sless tells RMD. “The reality for many of these seniors is that a large portion of these homes were purchased for far less than the home value as of today. As the home value has increased, so too have property taxes and the cost to insure the home.”
This can lead homeowners of these higher-value properties to face similar struggles when compared with other seniors living in homes with lower values in terms of their retirement planning efforts, he says, putting them more in-line with a needs-based borrower who may own a home of lesser value..
“These seniors deserve to have the option to access the full appraised value of their home,” he says. “No different than homeowners with a $200,000 home. I think the rise in the lending limit serves these people well.”
Remaining 2020 originations likely to slow
With the announcement of new lending limits coming so close to the end of the year, the possibility of a slowdown of originations in anticipation of the new limit is a natural consideration, according to originators according to Loren Riddick, national director of reverse lending at Thrive Mortgage, LLC in Alcoa, Tenn.
“We’re having record months, so I don’t think there’s going to be any slowdown there,” Riddick says of Thrive. “But in that unique case where a client has a home that’s valued at more than $765,600, they’re absolutely going to be much better off in waiting [for the 2021 limit to go into effect].”
New originations may slow a little for Sless and his company, but not in a way that’s expected to be very disruptive, he says.
“I don’t think they’ll slow down significantly,” he says. “Sure, some borrowers that fall in this sweet spot may want to wait until after the new year to proceed, but in the grand scheme of things I don’t feel there will be any slowdown other than the typical holiday lull.”
The more awareness clients have about the lending limit, the higher the likelihood that they’ll want to wait if they own a higher-value home, according to Christina Harmes Hika, originator with C2 Reverse in San Diego, Calif.
“There aren’t typically a flood of clients with home values between $765,600 and $822,375 at any one time, and I don’t see why the last few weeks of the year would be any different,” she says. “I do think there will be a few that hold off until the new year. I do have one client who was planning on waiting anyhow, who really wanted the FHA HECM even though his value is over $900,000. He was on the fence about doing a reverse at all with the only good fit being a jumbo, and now will be moving forward with a HECM in January.”
For Harmes Hika, the prospect of a surge of new business in January in the higher value range is also a distinct possibility, she says.
Higher-value homes in states with and without proprietary presence
For Sless, the rise in the lending limit is not expected to affect the work his division is doing in presenting proprietary options to borrowers, he says.
“Our work to market the various proprietary offerings doesn’t change,” Sless tells RMD. “Our mission to educate and engage with more astute borrowers remains a top priority. While the lending limit increase is nice, it’s not a game changer and I don’t feel it will take away from ‘jumbo’ business.”
In other parts of the country where proprietary products have yet to be approved, the rise in the lending limit will help to provide borrowers with high-value homes in certain states with a more viable reverse mortgage option. This is according to Loren Riddick, national director of reverse lending at Thrive Mortgage, LLC in Alcoa, Tenn.
“Being the national director at Thrive, I have a lens for the whole country. And so, I see firsthand the benefit that those portfolio products offer to our respective clients,” Riddick says. “Specifically for my home state of Tennessee that I love so much, I have no less than around 15 clients that have been patiently and impatiently standing by waiting on these portfolio products to make it to Tennessee.”
For Riddick, an increase in the uniform national reverse mortgage lending limit is of particular help for a market like Tennessee, where home prices are comparatively lower than those seen in a state like California or Florida, he says.
“I have felt that it is a huge advantage for those of us that are not in high FHA limit areas,” he says. “For example, in California and similar places, the FHA loan limit has always been the $600,000s and the $700,000s. Well, in my region, and many places around the country, it’s not that. It’s not automatically the maximum FHA lending limit.”
A home in East Tennessee which goes for $800,000 could equate to something like a $1.3 million home if it were located in California, so having the ability to serve those with higher home values on the HECM side in a state which does not currently permit proprietary products is beneficial, he adds.