Major Changes to HECM Applications: Feedback sought in Federal Register
[HUD/FHA]
HUD is seeking public feedback for planned changes to the loan origination documents for FHA-backed Home Equity Conversion Mortgages. [Listen for details] [Federal Register Post]
Other Stories:
[California Mortgage Relief] Time is running out for California reverse borrowers needing assistance with property charges.
[HUD] HUD announces the sales of notes for vacant HECM properties where all borrowers have passed away.
Will HECMs return to regional loan limits? This question arises from the Biden Administration’s 2025 Federal Budget and HUD’s 2025 Congressional justifications for their budget request. Today I’m going to walk you through the relevant changes including several notable proposed legislative changes to the Home Equity Conversion Mortgage program.
First, the proposal to allow HUD to establish regional loan limits. The Congressional justification states, “Currently, Home Equity Conversion Mortgages (HECMs) are subject to a single national HECM limit of $1,149,825 regardless of property location”. If approved this proposal would allow, but not require, HUD to establish regional loan limits aligned to the limits currently in place for the single-family Forward program.
The operative words are allow versus require which means the agency could potentially use their discretion to determine which areas would fall under a lower HECM limit. If Congress were to approve such legislative changes borrowers with higher-valued homes in Low Cost Areas would be most impacted. While HUD’s motives are unclear such limits if enacted would substantially reduce available HECM loan proceeds leaving a much larger equity cushion for homes that far exceed county limits.
For example, the single-family single-unit loan limit for traditional or forward FHA loans in a low-cost area is $498,257. That’s over $650,000 less than the current national HECM limit. Those originating in counties with lower average incomes and values would be most impacted.
But let’s look closer at some real-life examples. Using HUD’s FHA mortgage limit lookup tool we’ll look up the list of FHA limits in Kansas City, Missouri. As we can see every county in the state falls under the low-cost area limit of $498,257 for single units. If a regional limit were enacted, a 72-year-old reverse mortgage applicant in Kansas City Missouri with a home appraised at $750,000 at an expected rate of 7.25% would see their gross principal limit reduced from approximately $271,000 under today’s HECM limit regime down to $180,000- a $91,000 reduction in proceeds with only $498,257 of the home’s appraised $750,000 value considered.
Let’s try a state with a concentration of higher-valued homes, California. Here you’ll see both Low Cost Area and High Cost Area limits for single-unit properties by county or Metropolitan Statistical Area. Remember, these are not conforming limits but FHA limits. Some counties such as Los Angeles currently have a $1,149,825 maximum which is the same as our current national HECM limit. Keep in mind, that these loan limits are presently for FHA-insured forward mortgages.
Other regions such as Kern County and Bakersfield have homes that are typically worth far less than homes in larger metropolitan areas. Kern County’s 2024 FHA limit is $498,257 while areas such as San Jose, San Francisco, and Los Angeles all fall under the high-cost limit.
When considering these proposed legislative changes remember that similar requests to return to regional HECM limits, prohibiting HECM refinances, among others have been put forth but never passed by Congress.
Other notable proposed legislative changes to the HECM if approved by Congress include requiring HECM counseling for all refinance HECM transactions regardless if they received counseling within the last five years which is the current standard. Another proposal is to clarify the definition of a non-borrowing spouse as the NBS identified at the time of origination, but not to subsequent spouses. A removal of the cap on the number of HECMs that can be insured by FHA is also proposed. Lastly, since HUD has complied with the requirement that the HECM Actuarial Analysis examines the impact of HECM premiums, lower upfront premiums for refinances, and the existing national loan or HECM limit, the agency is asking for a conforming change to collect lower insurance premiums for HECM-to-HECM refinances. It’s unclear if that means the agency could eliminate or reduce the current upfront mortgage insurance premium credit allowed for refinances.
Of course, we will keep you updated should we see any developments regarding these proposed HECM legislative changes.
Here are the key proposed policy changes for the HECM that every reverse mortgage originator should understand and communicate with borrowers who may find themselves in these specific situations.
Despite improvements, Secretary Carson pushes for 3 key changes
While we’ve seen no official mortgagee letter or Congressional action on recently-proposed reforms to the Home Equity Conversion Mortgage- some key changes were restated last week in HUD Secretary Ben Carson’s written remarks to the House Financial Services Committee. Legislative proposals such as the elimination of a national lending limit and the removal of the HECM from FHA’s Mutual Mortgage Insurance Fund may hinge on next month’s Actuarial report to Congress. The report details the financial health of the program. However, the potential elimination of HECM-to-HECM refinances could be enacted outside of Congress by the FHA as an administrative change that doesn’t require Congressional approval. While opposed by key industry stakeholders, such a change could be held forth to lawmakers as confirmation of the agency’s continued commitment to the stewardship of the program should next month’s report reveal increasing financial liabilities.
The water is not quite under the bridge
Truth be told, recent fiscal year insurance claims provide little if any insight as to how effective previous policy changes may have been. Think of the reverse mortgage program’s financial liabilities as a large river. Notable incidents upstream will not be felt
Recent improvements, racial targeting, and some surprising suggestions
Despite the impeachment drama in our nation’s capital, the House Financial Services Committee’s hearing on the HECM was held as scheduled. It shows that some Congress members view of the HECM has evolved and some interesting proposals were put forth from the expert witnesses…
Secretary Ben Carson’s prepared remarks for recent Senate hearing confirm HUD’s mission to enact key HECM reforms
While politicians squabble over the government’s role in making homeownership a reality, older homeowners who wish to use their home’s value to age in place were left out of the debate in the hearing room. That doesn’t mean the HECM program is not facing some significant changes. In his prepared remarks, Secretary Carson outlines three changes- two which would require Congressional approval, and the third a mere policy change by the Federal Housing Administration (FHA)…
FHA’s New Collateral Risk Assessment will require a 2nd appraisal when determined that 1st appraisal is ‘inflated’
BREAKING- FHA announced today the enactment effective October 1st that all HECM loans must undergo a Collateral Risk Assessment to determine if the first appraisal is inflated or at market values. If it is determined that the appraisal exceeds the assessment’s guidelines, then a second appraisal will be required which can be financed into the closing costs of the loan. Read the mortgage letter
What are your thoughts? Please leave your input in the Comments section below, and share this post on social media using the Twitter, Facebook and LinkedIn icons at the top of this page. Thank you!
HSomRSan Clev
