Last week, the Federal Housing Administration (FHA) released a Letter to Mortgage Creditors (ML) containing long-awaited news from the reverse mortgage industry: The loan limit for federally guaranteed reverse mortgages increases for the sixth year in a row, and is expected to reach $ 970,800. in 2022. The new Maximum Claim Amount (MCA) for FHA Insured Home Equity Conversion Mortgages (HECMs) is a pronounced increase of nearly $ 150,000 from the observed increase in the loan limit. 2021 of $ 822,375.
The figure is in line with the higher conforming loan limit announced by the FHFA earlier on the same day the new HECM limit was announced, and is calculated at 150% of Freddie Mac’s national conforming limit of $ 647,200.
To gauge the reverse mortgage industry’s reaction to the news, RMD reached out to the reverse mortgage industry association, lenders across the country, and a brokerage dealing with higher value homes to share their thoughts. thoughts on what a loan limit of almost $ 1 million could mean. for the business and its ability to serve borrowers in the coming year.
Association response
For the National Reverse Mortgage Lenders Association (NRMLA), the new limits are seen as a recent welcome adjustment to the HECM program by the FHA according to Steve Irwin, president of the association. Considering current data indicating that senior housing wealth exceeds the collective $ 9.5 trillion, this only underscores the role housing wealth should play in a comprehensive retirement plan, says Irwin.
On top of that, the existence of a national loan limit – resulting from the efforts of the NRMLA – is a critical component of the reverse mortgage business today, says Irwin.
“Adjusting the HECM national loan limits will allow senior homeowners to strategically leverage the accumulated equity in their home as part of their retirement planning,” he says. “It is important to note that the single national loan limit for HECM (as opposed to the zone-by-zone limits) is something that exists due to the advocacy efforts of the NRMLA. The NRMLA was successful in persuading Congress and senior HUD officials that the area boundaries used for term mortgages didn’t really make sense to HECMs.
Area-specific loan limits make more sense to consumers looking to buy a home in their specific area, but an HECM has fundamentally different guiding principles, says Irwin.
“[A] HECM is used to help an owner withdraw money from their accumulated equity to age in place, ”he says. “The costs of aging, prescription drugs, durable medical equipment, adapting a house with stair rails, etc., do not differ by region. Thus, a homeowner with a higher value property in an area with a low FHA loan limit should not be penalized by only being able to borrow on the basis of [their area’s] term mortgage credit limit.
Lender Outlook on the reverse mortgage limit
The ability of the reverse mortgage industry to provide different choices to its borrowers was bolstered by the announcement of the new HECM MCA, according to Joe DeMarkey, head of strategic business development at Reverse Mortgage Funding, LLC (RMF).
“The evolution of reverse mortgage product development has given consumers the ability to compare prices for the product that best meets their needs. Having more choice in the reverse mortgage market is great for consumers, and this new HECM loan limit opens up even more options, ”DeMarkey said. “With this change, in 2022, more homeowners could qualify for HECM than in 2021.”
The increased limit is good news for loan officers and for some existing borrowers who may qualify for additional proceeds through a refinance transaction. Therefore, it is also possible that the new limit will continue to fuel HECM refinancing activity at HECM in the new year, he adds.
Optimism about the new limit is also shared by Finance of America Reverse (FAR), according to Field Retail vice president and chief government relations officer Scott Norman.
“Given the related increase in compliant loan limits, this is an expected but encouraging development for the HECM space as a whole and will increase the potential for additional HECM borrowers to have more and better opportunities.” to age in place and thrive in their homes, “Norman told RMD.” With this drastic increase in credit limits over the past five years, we’ve seen a new booming segment of borrowers considering to leverage their home equity and get a reverse mortgage as part of their overall retirement plan. ”
Industry growth potential from the new limits is widely seen as a feather in the HECM program cap for 2022 from the perspective of Bruce Barnes, the recently appointed general manager of the reverse mortgages division at Cherry Creek Mortgage. .
“Increasing the loan limit is a great opportunity for our term and reverse mortgage channels to work together to help more seniors,” Barnes told RMD. “Cherry Creek’s distribution platform is really well positioned to help grow the reverse mortgage market with these increases. “
Few lenders have chosen to discuss the potential impact that a loan limit of nearly $ 1 million will have on any exclusive reverse mortgage business they are engaged in, but for Barnes and Cherry Creek the news limit should not have a significant impact on its proprietary activities.
“I don’t think it really cuts into ownership,” Barnes said. “The average loan size for homeowners is around a million dollars. So having a maximum claim of $ 970,800 won’t really have an impact on this market. “
Broker activity, estate loans
However, for at least one broker, who primarily operates in areas with higher value homes, proprietary loans have become a significant part of origination volume. This is the case with the C2 Reverse division of C2 Financial, according to its national director Scott Harmes.
“We have found that for many borrowers it is important to present both HECM and jumbo options because HECMs have lower rates, but jumbos are much cheaper at close,” Harmes told RMD . “At the 2021 FHA loan limit of $ 822,375, we found that for all homeowners valued at approximately $ 900,000 to $ 1,000,000, an analysis showing both the HECM and jumbo options was warranted. . With the 2022 FHA loan limit at $ 970,800, this will shift that range of values for our “HECM + Jumbo Options Review” up to $ 1,050,000 to $ 1,200,000. “
The higher limit on the HECM side and the continued development and evolution of proprietary products make this a segment of borrowers that can benefit from both events simultaneously in the case of C2, says Harmes.
“The significant increase in home values over the past few years and the impact of the pandemic, [have made] aging in place is a more common and important priority, ”says Hermes. “This increase in the FHA 2022 loan limit and the continued maturation of the exclusive selection of reverse programs offer senior homeowners the opportunity to leverage their home equity for a more stable retirement than ever before.”
Look for additional insight on increasing the HECM loan limit of industry participants on RMD in the coming days. Read LM 2021-29 for the official document raising the HECM 2022 loan limit.
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