HECM Reverse Mortgage Loan Limit Got Raised to $625,500

The economic stimulation bill recently made into a law by the President raises the national loan limit for HECM reverse mortgages to 150% of Freddie Mac loan limits criteria. This creates a higher new HECM loan limit which is $625,500. This is a successful outcome of the efforts of the AARP and the NRMLA (National Reverse Mortgage Lenders Association). The higher HECM loan limit is applicable only for loans made during the balance of the year 2009. The higher limit is not available beyond the current year 2009. Congress will need to make a new bill proposal to extend the higher limit beyond 2009.

What does a higher HECM loan limit mean? There are more loans that do not yet have the “cushion” of additional value above and beyond the maximum claimed amount. Example if a house is valued at $631,000 and the loan limit is $417,000, FHA has the benefit of $214,000 in additional value. This can help prevent the FHA from incurring a loss if a claim is to be paid on the loan. With this new higher limit, the “cushion” on that loan would only be $4,500. When Bush was President, the administration required a “risk review” and possibly an upward adjustment in the MIP (monthly investment plan) to compensate for the high degree of risk. It is unclear whether the present Obama administration will require a similar MIP adjustment or risk review.

There is also some concern that, HECM borrowers who recently took refinance with the $417,000 limit will be “churned” into another refinance with the new limit and incur closing costs all over again. The “streamlined refinance” program can be used to lower the up front MIP. But there is still concern about making a senior who has just paid an origination of $6,000 to refinance and incur the same cost again. It is a topic for discussion as to whether or not the HUD can place further origination fee limits on HECM transactions.

One Comment

  1. Acre Mortgage says:

    The first time buyer credit included in the Stimulus Package has gotten more press, but the HECM loan limit increase is just as important.