I am 87 and received a HECM Loan, maximum claim $250,000 on June, 2006. Credit limit due to age and other factors was due to reach maximum claim in 2012.Withdrawals were denied beginning in June 2010, when the balance was around $225,000 and no withdrawals have been allowed since The server has been getting compound interest each month and HUD has been accessing fees and premiums. Correspondence with the server and HUD got a big SORRY. Maybe I’m delusional, but something doesn’t add up here. Am I wrong?
Without seeing your closing documents or even your Loan Comparison Page, I can only guess at what is going on here but let me take a stab at it and if this does not seem to come anywhere near your circumstances, please feel free to contact me and I would be happy to go over your individual information with you.
Firstly, there are a lot of terms with a reverse mortgage that are not similar to or even used in a standard or forward mortgage. I see that you use the term “Maximum Claim” and give a figure of $250,000. The Maximum Claim on the reverse mortgage in 2006 would have been the lower of the property value or the HUD lending limit for the area…not the maximum amount you can borrow.
In 2006, HUD had different Lending Limits for different areas. If your property appraised for more than the HUD maximum in your area, your benefits would still have been calculated on the Lending Limit for your area. In 2008, legislation was enacted to make one national limit of $417,000.
This limit is under a temporary increase to $625,500 at this time that was put in place under the American Recovery and Reinvestment Act of 2009 and has been extended until the end of 2013 and will revert to $417,000 at that time if it is not extended again.
If you had a Maximum Claim of $250,000 at the time you took out your reverse mortgage, that would mean that your property either appraised for that amount or that was the HUD maximum for your area at the time. This is the amount that the lender then uses to determine your benefit amount.
The benefit amount is also known as the Principal Lending Limit and this is the amount you receive based on your parameters and from this Principal Lending Limit, you would subtract any mortgage or other liens you had to pay off, any costs you incurred for the loan and the remaining funds would be available for you to take as a lump sum, as a monthly distribution, to leave in a line of credit and take as you desire or as a combination of any or all of those options (the fixed rate option was not available in 2006).
Depending on how quickly you used the loan available to you in the early stages, the balance available to you grew over time on the unused portion. This growth of the line is what allowed you to ultimately borrow more total dollars than if you had borrowed all your available funds all at one time…although even with growth in the line of credit, you may not be able borrow all the way to your Maximum Claim Amount.
Just for the record though, I have seen several simulators where the funds available to the borrower actually exceeded the original maximum claim amount but that was in the case of borrowers who had no liens to pay off and allowed the line to grow for 6 to 7 years with no draws whatsoever.
The amortization schedule you received with your loan when you first signed your documents would have shown you how long the line would last and how the balance would rise, but only if you advised your lender how much you planned to draw yearly so they could run that number for you. Otherwise, the system cannot account for draws and numbers about which it has no information.
So without knowing how much you owe on current liens at the time and how much you drew from the loan annually, I could not give you a helpful comment on whether or not it is realistic that there would be any money left on the original line. However, I may be able to offer a ray of hope. As I told you, HUD has raised the Lending Limit (or Maximum Claim Amount) to a current limit of $625,500.
I don’t know the value of your home at this time, but many houses are again seeing some appreciation at this time. Especially if your home was worth more than the Maximum Claim Amount at the time you did your first loan, you may be an ideal candidate for a HECM to HECM refinance. If you did a loan with a monthly servicing fee, you could eliminate that as well.
Fixed rates are available now that were not available then, but the fixed rate will not be available much longer and it requires you to take all your eligible funds at closing. The other downside is that your monthly annual Mortgage Insurance Renewal is just .5% of the outstanding balance and that would go to 1.25% on a new loan so you would have to weigh that factor.
For you to be eligible, HUD requires that you must receive a minimum of 5 times the cost of the loan in new benefits with the new loan. You do not have to re-pay any mortgage insurance premium that you have already paid, so if your property is worth more now or if you did receive lower benefit before due to the HUD lending limits in different areas, you may qualify for a refinance at reduced costs and you may be able to get more benefits that way.
If you live in an area where the third party costs are about $3,000, and your additional mortgage insurance premium runs another $2,000 based on the increase, you would need to net at least $25,000 from the new loan to be eligible. It will not work for all borrowers and the 5 times rule is a bit tougher for a reason. That way people will not try to get seniors to refinance loans for just a very small return. But this may work for you and you may want to look into it.
If you decide to check into it, you can speak to a reverse mortgage specialist who can look up property values in your area, look at your most recent statement and see if a refinance is a possibility for you.
2019's Reverse Mortgage Principal Limit Factors
|Age of Borrower||Percentage of Home Value||Home Value $200,000||Home Value $400,000||Home Value $600,000||Home Value $726,525 (Current Limit)|
PLF tables source: https://www.hud.gov/sites/documents/august2017plftables.xls