BREAKING: HUD Cuts PLF Factors, % Rate Floor & Increases Upfront FHA Insurance Premiums

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Without any prior warning or industry comment, HUD formally announced an increase of upfront insurance premiums for all borrowers, regardless of initial distributions, to 2% upfront, and .5% for ongoing mortgage insurance premiums. The agency stated the need to ensure the continued economic sustainablity of the HECM program and its fiduciary responsiblity to taxpayers.  [See Mortgagee Letter 2017-12] [ Wall Street Journal Article View on Facebook to see full article]

HUD has lowered the interest rate ‘floor’ from 5.06% to 3.00% in it’s PLF tables, essentially pushing lenders to compete on interest rates and margins. We expect to see more lenders switch from the monthly to the annual adjustable LIBOR index in response. In addition the new PLF tables accomodate a rising interest rate enviornment with lending ratios provided as high as up to 18.875%, wheras the previous tables zeroed out lending ratios at 10%. [New 2017 PLF Tables] [Old 2014-2017 PLF Tables]

In our analysis, the reduction in ongoing FHA premiums will significantly reduce the ongoing growth of the HECM’s Principal Limit (available funds), or what many refer to as the line of credit. This development will substantially change several strategies touted in recent years, such as the Standby Reverse Mortgage, and those seeking to use increasing available funds as a hedge against unexpected financial shocks in retirement.

Principal Limit Factor will be reduced from 64% to 58% on average and an approximate 20% reduction available funds for most borrowers:

Screen Shot 2017-08-29 at 4.41.43 PM
* 20% reduction with new PLFs and lower interest rate floor after October 2nd, 2017

HUD is soliciting feedback from interested parties until September 29, 2017. Feeback can be submitted to:

Official Mortgagee Letter 2017-12 “Home Equity Conversion Mortgage (HECM) Program: Mortgage Insurance Premium Rates and Principal Limit Factors

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BREAKING: New PLFs Released

More money for older HECM borrowers, substantially less when younger non-borrowing spouse present

Today HUD released new PLFs (Principal Limit Factors) which now include a table for younger co-borrowers.  Jerry Wagner, the President & owner of IBIS Software which provides  origination software and information for both HUD and HECM Lenders released a very helpful comparison chart (see downloads below) which helps identify the impact of the new lending ratios.

Here is a summary of the changes:

  • HUD made the changes via Mortgagee Letter 2014-12
  • Younger primary borrowers will see a modest increase in their PLFs until the Expected Rate reaches 5.37% and higher (see inset below).
  • Older borrower will see a substantial increase in proceeds until the Expected Rate nears 7% and higher
  • The new Principal Limit Factors go into effect for FHA case numbers assigned on or after August 4th, 2014
  • Borrowers who have not closed their loans and have FHA case numbers prior to August 4th may opt to use the new PLFs (see ML 2014-14 for requirements)
  • The table for younger non-borrowing spouses (18-61 years old) only applies if at least one borrower meets the minimum HECM age requirement of 62. Proceeds will be based on the age of the youngest spouse.


NEW 2014 PLF Table     PLF Change Analysis (IBIS Software)   Mortgagee Letter 2014-14

NEW PLF Analysis
NEW PLF Analysis