February 2009

New HUD Lending Limit

Contrary to my Twitter comment, the correct amount is $625,500 that’s what happens when you’re dyslexic!   As of today the new nationwide lending limit for Reverse loans will be the figure I just mentioned.  

This additional amount of money will help many seniors who are strapped for funds and desperately hanging on without any other options and it will take away the pain of not having enough money to make house payments, medical expenses or any other bills that they are obligated to pay on each month.

I have been making a number of phone calls today, doing calculations for many people who have been waiting for this to happen and hopefully they still have enough equity to do a Reverse mortgage.   Sometimes I run into those situations where the client had done so many cash-out refinances, that they no longer have enough equity to even do a Reverse loan and then I can’t help them.

This latested development will create a surge in new applications as the demand for the loan continues to increase due to the current economic situation and every senior who has been waiting for this moment, will apply for the loan.

HUD requires that the applicants do counseling and I’m just betting that the counseling agencies are already getting a lot of calls to set up appointments.   And this will probably cause a slow down in their ability to set them right away and undoubtedly there will be some sort of backlog on meeting the demand from the agencies.

Now is an excellent time to move forward on applying, as the rates are the lowest that I have ever seen them in the last several years.   If a senior has been hesitating due to fear, it’s time to do the counseling, get educated and move forward on taking charge of their  life.

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New Lending Limit for Reverse Loans?

I haven’t posted anything lately due to the fact, that I’m been extremely busy.   The demand for Reverse loans has increased because of the current economic situation, that is leaving many Seniors in precarious situations and unable to meet their monthly obligations.

I’ve been talking or meeting with many of them to illustrate how much money they could receive from a Reverse loan but in some cases I am unable to help, because their current loan has an enormous balance that is too high for a Reverse mortgage to payoff.

But there is good news that could resolve this problem and I am going to post the following article from the National Reverse Mortgage Lenders Assoc. discussing this topic.

Implementing the New $625,500 HECM Loan Limit
February 18, 2009
As most NRMLA members know, the economic stimulus bill signed into law by President Obama today raises the single national loan limit for HECMs to 150% of the Freddie Mac loan limit. Currently, that would create a HECM limit of $625,500. This is the direct result of a successful joint effort by NRMLA and AARP to obtain this higher loan limit. Under this new law, the higher limit is only applicable for loans made during the balance of 2009. We must go back to Congress to get the higher loan limit extended beyond this year.

Please understand that HUD must first issue a Mortgagee Letter implementing the new loan limit before it becomes operational. We have been discussing the timing for issuing this Mortgagee Letter with the Department and it is still unclear how long it will take to get it out, due to a few considerations.

First of all, a higher loan limit means that there are more loans that do not have the “cushion” of additional value beyond the maximum claim amount. For example, if a home is valued at $630,000 and the loan limit is $417,000, FHA has the benefit of $213,000 in additional value that could help prevent it from incurring any loss if a claim is paid on the loan. With the new higher limit of $625,500, the “cushion” on that loan would only be $4,500. Under the prior administration, the Office of Management & Budget, which is part of the White House, would have required a “risk review” and perhaps an upward adjustment in the MIP, to compensate for the higher degree of risk in the program. It is unclear yet whether the new administration will require a similar risk review and MIP adjustment.

Secondly, there is some concern about HECM borrowers who recently refinanced into a loan with the $417,000 limit, being “churned” into a refinance under the new limit and incurring the costs all over again. While the “streamlined refi,” option could be utilized to lower the upfront MIP, there is some concern about making a home owner who has just paid an origination fee of $6,000 within the past few months to refinance at $417,000, incur that same cost all over again. It is unclear, from both a legal and practical standpoint, whether or not HUD can place further origination fee limitations on HECM transactions, but it is a topic of discussion.

As always, NRMLA stays in close contact with our colleagues at HUD and will keep you apprised of developments regarding implementation of the new law as we receive information.

Peter H. Bell

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Reverse Loan Consultant