In early December, the U.S. Department of Housing and Urban Development (HUD) announced that the lending limit for Home Equity Conversion Mortgages (HECMs) – the federally-backed reverse mortgage program – will be increasing for the fourth year in a row.
Beginning on January 1, 2020, the lending limit for government-insured reverse mortgages will be $765,600, marking an increase of $39,075 from the lending limit HUD set for 2019. HUD announced the revised lending limit for 2020 in an officially released Mortgagee Letter (ML).
The amount of growth exhibited in the lending limits over the past few years marks a very different status quo than what the reverse mortgage business saw in years past. In 2009, HUD handed down a lending limit of $625,500, which remained in place for the following eight years.
Then in 2017, the lending limit saw its first increase since the days of the American Recovery and Reinvestment Act following the 2008 financial crisis.
History of HECM Reverse Mortgage Lending Limits |
- 2009-2016 | $625,500
- 2018 | $679,650
- 2019 | $726,525
- 2020 | $765,600
- 2021 | $822,375
- 2022 | $970,800
- 2023 | $1,089,300
What These New Limits Mean for Borrowers
If you’re a prospective reverse mortgage borrower who has a home valued at or around the new 2020 lending limit, the new MCA will allow you to borrow demonstrably more money in a reverse mortgage transaction.
Remember, the amount of money you can borrow is directly influenced by current interest rates, your home value, and your age at the time that the loan is originated; younger borrowers qualify for generally lower proceeds when compared with older borrowers.
If a borrower is 65 at the time, he or she takes out a reverse mortgage loan, then that borrower may be able to borrow to up to 55% of the home’s total value in reverse mortgage loan proceeds. Under the 2019 limits, that borrower who has a home valued at $765,600 or more would be eligible for up to $398,862 in loan proceeds.
Under the 2020 limits, however, that same borrower would be eligible for $22,415 more, with proceeds under the new limits going up to $421,080. If a borrower is much older, however, then that same value home can net as much as $28,415 more in loan proceeds if they’re at least 85 years old.
That means that these new limits can certainly make a major difference in the ability for borrowers to earn more money in loan proceeds, but there are also some potential rule changes that could come in the future that may change the program – and the amount of money someone can borrow through it – pretty significantly.
Proposed Regional Lending Limits
The HECM program in recent years has endured some financial instability in terms of its effect on Uncle Sam’s finances. That instability has led a lot of people, from government analysts to think tank researchers, to try and find ways to stabilize the HECM program so that its financial health can allow it to exist long into the future.
One of the suggestions made by officials from the Trump Administration in the White House takes aim specifically at lending limits, and ways that they can be changed to improve the overall financial stability of the reverse mortgage program.
Specifically, instead of using one national lending limit, a suggestion calls on HUD to institute lending limits that are more closely aligned with the region in which a borrower lives.
“Congress should revise the loan limit structure in the HECM program to reflect variation in local housing markets and regional economies across the United States instead of the current national limit set to the level of high-cost markets in the forward program,” reads the White House proposal released in September. – Source Forbes “Changes May Be Coming To Reverse Mortgage Rules, But What Do They Mean?”
It’s not clear how committed members of Congress would be to such a change, which would require their approval before such a proposal could be put into practice. Nevertheless, it’s an option that is on the table, and could affect the amount of money that potential reverse mortgage borrowers could have access to.
Private reverse mortgages
If you find yourself concerned about the lending limits for the government sponsored HECMs, then you may want to investigate an alternative reverse mortgage option, such as a private/proprietary loan from a reverse mortgage lender.
Unlike the federally insured program, private reverse mortgages have much higher loan limits and are not prone to the changes inherent in the HECM program, though many of the private options make efforts to emulate the most well-liked features of traditional HECMs.