Larger Reverse Mortgages Available to Seniors In 2006
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HUD and the National Reverse Mortgage Lenders Association (NRMLA) have announced increases in the 203(b) limit on home equity conversion mortgages (HECM) for 2006. This is welcome news but the limits remain a constraining issue for the reverse mortgage industry:
203(b) limits were primarily designed for federally-insured forward mortgage insurance programs to limit activities to low- and moderate-income households. In the forward market, where income is a principal determinant of loan amount, the loan limits may be an appropriate way to target this segment of the market. But in the case of reverse mortgages, borrowers are generally all low- and moderate- income households. In this case, the 203(b) limit does not screen out households by income level, but it does limit the amount their equity borrowers can tap. Borrowers and lenders complain that while owners can only borrow up to the applicable 203(b) limit, the entire value of the house is pledged against the loan.
Here is the NRMLA announcement:
Social tagging: Reverse Mortgage NewsWASHINGTON, DC – Older homeowners will be able to convert a greater portion of the equity in their homes into tax-free income using a reverse mortgage starting next year because of new, higher loan limits, the National Reverse Mortgage Lenders Association announced today.
The increases will affect two reverse mortgage products: the federally insured Home Equity Conversion Mortgage (HECM), which accounts for 90 percent of all reverse mortgages made in the U.S., and the Fannie Mae Home Keeper loan.
The loan limits for the HECM product vary by geographic area. The highest of the loan limits—applicable generally to major metropolitan areas—will grow from $312,896 to $362,790. The lowest loan limit, which generally applies to rural and non-metropolitan areas, will grow from $172,632 to $200,160. HUD must first issue an FHA Mortgagee Letter before the new loan limits take effect. A letter should be forthcoming around the New Year.
Fannie Mae’s national loan limit for single-family mortgages—which includes Home Keeper loans—will rise next year to $417,000 from the current limit of $359,650. The loan limit is 50 percent higher for Alaska, Hawaii, and the U.S. Virgin Islands.
“These increases in the loan limits for the HECM and Home Keeper products will enable seniors to access greater amounts of equity in their homes, providing a powerful tool for addressing their financial needs through retirement,” said Peter Bell, president of NRMLA.
Approximately 79.8 percent of the 3,226 counties (2,575) in the U.S. are currently at the HECM “floor.” Only 104 counties, or 3.2 percent of the total, are at the current maximum loan limit. The balance are somewhere in between. While counties at the floor are guaranteed to rise from $172,632 to $200,160, there is no guaranty that counties at the current “ceiling,” or in between the floor and ceiling, will rise immediately.
To view the current lending limit in your county, go online to HUD’s website.
A reverse mortgage is a unique loan that enables senior homeowners (62+) to convert part of the equity in their homes into tax-free income without having to sell the home, give up title, or take on new monthly mortgage payments.
Borrowers can choose to receive reverse mortgage funds as a lump sum, monthly income, or line of credit, or as a combination of these. Borrowers can use the funds for any purpose, including home repairs and improvements, medical expenses, in-home care, education, and supplemental retirement income. No mortgage payments are due during the life of the loan. The loan becomes repayable when the borrower sells the home or permanently moves out. In addition, the repayment amount can never exceed the value of the home.
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