New HECM Loan Limits
Sometime between October 1st, 2008 and January 2009 HUD will be increasing the loan limits for HECM Reverse Mortgages as outlined in the Housing and Economic Recovery Act of 2008.
According to the NRMLA, HUD’s lawyers are still trying to figure out how to enact these limits. Now I am not a lawyer but it doesn’t seem like there are too many ways to interpret it. We gave it a shot and put a New Proposed HECM Reverse Mortgage Limit Calculator on our website to give you an idea of what the calculations will be. Below is an explanation of our interpretation and the EXACT TEXT from the bill to back it up. DISCLAIMER: I am not an attorney and this may not be how HUD interprets the law.
First it establishes the base amount of $417,000.00 through the following text: ” Section 302(b)(2) of the Federal National Mortgage Association Charter Act (12 U.S.C. 1717(b)(2)) is amended by striking the 7th and 8th sentences and inserting the following new sentences: `Such limitations shall not exceed $417,000 for a mortgage secured by a single-family residence”
That seems pretty cut and dry the limit cannot be higher than $417,000. Simple enough, but then just like on the forward side there is an exception for High Cost Areas:
“(2) HIGH-COST AREA LIMIT- Section 302(b)(2) of the Federal National Mortgage Association Charter Act (12 U.S.C. 1717(b)(2)) is amended by adding after the period at the end the following: `Such foregoing limitations shall also be increased, with respect to properties of a particular size located in any area for which 115 percent of the median house price for such size residence exceeds the foregoing limitation for such size residence, to the lesser of 150 percent of such limitation for such size residence or the amount that is equal to 115 percent of the median house price in such area for such size residence.’.
For the High Cost HECM Limit this is saying that if 115% of the median price for an area is more than the $417,000. You use the LESSER of 115% of that areas median price OR 150% of $417,00 which is $625,500.
Here is an example using the current median home prices Miami-Dade County, Florida - current median price is $339,000 and 115% of 339,000 = $389850 so this is NOT a high cost area under the new law and would default to $417,000.
HUD has 3,233 counties in their current database for loan limits. Under my interpretation of this ruling 3,028 counties would have a limit of $417,000 and not be considered “high cost”. 81 counties would utilize the cap of $625,500 leaving only 124 counties to that would be calculated.
I think HUD’s biggest problem with implementation is going to be waiting for the updated median prices to be released so they can calculate these 124 counties that fall in the middle. Again I AM NOT AN ATTORNEY, but you can read exactly what I read and draw your own conclusions. To me it seems like this is the only way to calculate to stay in accordance with the law.
If you are curious as to the impact the new limits will have on your reverse mortgage eligibility, we put up a calculator on my companies reverse mortgage website to give you a comparison. WE ARE NOT ADVERTISING THESE AS AVAILABLE LOAN LIMITS, WE ARE NOT 100% SURE THAT HUD WILL USE THE METHOD I HAVE OUTLIEND ABOVE, but if they do then our calculator is correct. You can check it out here New Proposed HECM Reverse Mortgage Limit Calculator