HUD released their announcement verifying the news we released on November 28, 2018 raising the Mortgage Lending Limits for HECM Loans. The numbers came in exactly where we expected and so the article, we posted on November 28, 2018 is now official.
But remember, the new limits are only effective with Case Numbers issued on or after January 1, 2019.
What this means is that in order to be able to benefit from the increase if a borrower currently has a loan in process with a Case Number assigned, that Case Number would have to be cancelled and started all over again with a new Case Number.
Borrowers with properties valued above the old maximum lending limit of $679,650 must wait for January 1, 2019 for their lender to order their Case Number and begin ordering their services (title, appraisal, etc.).
You can, however, continue to complete your counseling in the meantime where that may save them additional waiting periods such as in the state of CA where there is a 7-day waiting period between counseling and the time the lender can start any loan services which includes ordering a HUD Case Number.
Limits Raised to $726,525
FNMA (Fannie May) just announced the mortgage loan limits for 2019 of $726,525. HUD has not yet made their announcement but since they both use the same calculation, we believe we can expect an announcement from HUD any day now to mirror this new limit based on current property values.
While we do not have anything from HUD making this official yet, we do believe we will soon receive the same numbers from HUD and that will affect the amount that reverse mortgage borrowers will receive on the HUD Home Equity Conversion Mortgage (HECM or “Heck-Um”) reverse mortgage program.
If you look at the table below, you will see how the new limits will affect borrowers if they are implemented as we expect they will be at the beginning of the year:
2019 Reverse Mortgage Limits Example
AGE 2017 Limits ($636,150) 2018 Limits ($679,650) NEW 2019 Limits ($726,525) Difference
65 $316,802 $327,591 $361,809 $34,218
70 $337,159 $350,019 $385,058 $35,039
75 $353,063 $367,011 $403,221 $36,210
80 $376,600 $392,837 $430,102 $37,265
85 $408,408 $428,179 $466,429 $38,250
The 2019 reverse mortgage limits are determined based on home values. But now HUD must do some soul-searching. Many have written about the fact that HUD will soon be forced to perform further cuts to the program due to the losses the program has sustained in the past and the anticipated losses going forward.
HUD has already tightened up the program dramatically in the past 4 years but still sees massive losses to the MIP fund based on loans closed in prior years. HUD seeks to keep the program active and viable for seniors but must do so without endangering the MIP fund for all FHA-insured loans.
Therein lies the conundrum. Any other year, HUD would seemingly surely follow the same path as FNMA with the loan limits based on housing data. With their need to stem the losses though, it’s a real guessing game as to whether HUD will use this as an opportunity to keep the limits at their current level, or possibly further lower Principal Limit Factors which would acknowledge the higher maximum lending limit but would give borrowers less money as a percentage of their home’s value.
HUD conducted a call in Mid-November at which time they did allude to additional changes to come but have not delineated what those changes will be at this time.
2019's Reverse Mortgage Principal Limit Factors
Age of Borrower Loan-to-Value Home Value
Home Value $726,525+
(2019 Hecm Limit)
$92,400 $138,600 $184,800 $231,000 $277,200 $323,400 $335,654
65 48.2% $96,400 $144,600 $192,800 $241,000 $289,200 $337,400 $350,185
70 51.5% $103,000 $154,500 $206,000 $257,500 $309,000 $360,500 $374,160
$108,000 $162,000 $216,000 $270,000 $324,000 $378,000 $393,323
$115,600 $173,400 $231,200 $289,000 $346,800 $404,600 $419,931
$126,000 $189,000 $252,000 $315,000 $378,000 $441,000 $457,710
90 68.6% $137,200 $205,800 $274,400 $343,000 $411,600 $480,200 $498,396
PLF tables source: https://www.hud.gov/sites/documents/august2017plftables.xls
Knowing all we know now, we do anticipate the maximum lending limit to be increased at the end of the year.
This will allow HUD to collect a higher mortgage insurance premium on properties valued over their past 2018 limit of $679,650 while not having any effect on properties below this value as their mortgage insurance premium is already based on the higher property value and not the HUD limit.
All the figures we have prepared are based on the loan factors currently in effect and they would obviously change if HUD does further cut the Principal Limit Factors. In past years, these numbers have been much easier to predict but with the HUD changes rumored due to the losses, we are speculating at this point.
We cannot begin to accept new loans at the higher limit until HUD makes the official announcement and makes it effective. Even then, HUD will have to give the date for which new loan applications can begin to use the higher limits based on the date the FHA Case Number is assigned.
While we hope that the 2019 limits will mirror the FNMA increases and will give borrowers more cash available, we always encourage borrowers to consider their circumstances and to realize that it could go either way if cuts are also included or if interest rates go up in the meantime (interest rate increases lower amounts available to borrowers) and not to wait if you believe that the current parameters will meet your needs.
Stay tuned for the official announcement with the amount and the dates borrowers can begin to use them and we will keep you up to date as soon as they become available!