HUD Tightening Encourages the Return of Jumbo Reverse Mortgages
This is the time to look (perhaps your second look) at the All-New 2018 JUMBO reverse mortgage programs. Traditionally, most borrowers, ages 62 and over, have benefited from the HUD Home Equity Conversion Mortgage (HECM or “Heck-um”). The reverse mortgage program has undergone some rough years. The Department of Housing and Urban Development (HUD) has made one move after another, making it harder to qualify and lowering Principal Limits (how much you receive). The changes that took effect as of October 2, 2017 have had a two-fold effect; lower Principal Limits and lowering the interest rate floor provided borrowers even less money.
To be fair, these changes are not entirely due to HUD. The recent losses to the program stem from borrowers who could not afford their homes, even after they received the reverse mortgage; those who defaulted on their taxes and insurance; and plummeting market values did not help. The entire Mortgage Insurance Fund, which affects all borrowers who rely on federally-insured loans, was at risk and HUD responded. One of the silver linings from the changes HUD made is the re-emergence of the Jumbo Reverse Mortgage Program.
For most borrowers, proprietary jumbo programs simply did not make sense. Most often, borrowers with homes worth less than $1,500,000 would typically receive as much or more money on HUD programs with much lower rates. The recent changes made by HUD have made it easier for proprietary loans to enter the market again, offering a product that makes sense for borrowers for with home values at $850,000+
With interest rates on the rise over the past year along with new proprietary programs coming out with lower interest rates, the difference in offered rates is much less when considering the HECM versus the proprietary Jumbo Reverse Mortgage.
Lower Closing Costs
Upfront and ongoing monthly mortgage insurance are not required with the Jumbo program increasing the programs appeal. The upfront mortgage insurance premium charged on a HECM loan is formulated at 2% of your home value with a cap of $636,150. That’s an immediate closing cost savings of $12,273.00 when directly comparing the financed closing costs of a HECM to Jumbo program.
Lower Interest Rates
The higher jumbo rates have come down from a previous 7.50% to as low as 5.99% and requires no additional monthly insurance charges as required on all government HECM plans. Monthly mortgage insurance is not interest, but it accrues in the same manner, so you save by not having to pay it on the jumbo loan. When you remove the monthly mortgage insurance which HUD charges at .50% and consider the new lower offered rates, the Jumbo reverse mortgage options have become incredibly attractive.
The jumbo reverse mortgage provides better loan-to-value ratios, which means borrowers receive more money as a percentage of their home value. In most cases, it no longer takes a home value of $1,500,000 for the loan to make sense. The Jumbo loan WORKS for many more borrowers than it did previously.
Loan To Value Examples
Fixed Rates* 5.99% (6.26% APR) 6.5% (6.83% APR) 7.0% (7.41% APR) 7.5% (8.03% APR) Your Age LTV LTV LTV (Special Exception) LTV (Special Exception) 62 21.00% 29.00% 32.00% 34.00% 72 35.00% 38.60% 41.60% 43.60% 82 45.00% 48.20% 51.20% 53.20% 92 50.00% 53.00% 56.00% 58.00%
For Example: 72-year-old homeowner can opt for a 6.5% (6.83% APR) and receive a lump sum of 38.6% of their home value. ($1,500,000 Home Value = $579,000 amount available.)
The jumbo programs make a lot more sense for many when you consider all the improvements; lower rates and fees, higher loan amounts and underwriting enhancements are a benefit to seniors with property values at or above $850,000. It is safe to say the new jumbo products will not be the solution for all borrowers, but it most definitely gives a senior more options and the ability to choose whether or not they wish to capitalize on a program that looks at the full value of their home (up to $4 million).
Eligible Property Types & Other Considerations
Jumbo programs are eligible on single family residences, condominium properties or two-unit properties, as long a borrower occupies one unit.
NOTE: Condominiums do not require any special HUD condo approval over $500,000 property values. All Condominium property types will receive an automatic 10% haircut to the Loan-to-Value
Properties that were listed for sale within the last six months of application are subject to evidence, such as a Multiple Listing Service (MLS) cancelation, indicating that the subject property is no longer listed for sale.
Non-borrowing spouses are eligible, but are not subject to the same protections offered with a HECM. Therefore, if there is a NBS, they should strongly consider a HECM loan. The Jumbo allows a NBS with additional requirements, such as a video-taped interview session with the borrower’s attorney and a court reporter to ensure all parties understand the transaction.