HUD Lowers Principal Limit Factors for FHA Reverse Mortgage Program

The U.S. Department of Housing and Urban Development posted Mortgagee Letter 09-43, which announced a new set of principal limit factors for the Federal Housing Administration (FHA) HECM program. The changes will lower the principal limits for the HECM by 10%.

According to the ML, the new principal limit factors must be used for all HECMs which the FHA case number is assigned on or after October 1, 2009.

All loans for which the FHA case number has already been assigned as of September 30, 2009 may be processed as usual. The lender need not change any of the calculations of principal limit or re-disclose to borrowers any changes in the HECM proceeds that the borrower will receive.

The announcement comes after the National Reverse Mortgage Lenders Association worked directly alongside AARP and FHA about what the industry’s options were. FHA felt that since the appropriations process is unlikely to provide credit subsidy, program changes are the only viable route for keeping the program operating past September 30, said a statement from NRMLA.

Since an appropriations bill hasn’t been passed yet, NRMLA told RMD that an interim measure known as a “continuing resolution” is being brought up in Congress. This will continue the suspension of the authorization cap on the HECM program, allowing HUD to continue insuring HECMs, but provides no credit subsidy.

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Reverse Mortgage Subsidy or Principal Limit Factor Reduction?

On a daily basis, we hear about the economic crisis and the hardships plaguing our country, from the loss of jobs, to high unemployment rates, crashing property values and companies closing up shop. It’s disconcerting to say the least. What I find to be more disturbing is that our lawmakers would reject a $789 million dollar subsidy to FHA for the HECM product, a product which actually helps our seniors during such tough times to get cash from the equity in their homes and maintain independence. Instead, the House recommends FHA reduce the principal amount a senior can borrow.

In these tough times, it is bad enough that our aging population has lost astronomical amounts in sustainable income through investments, to now have appropriator’s in the House rejecting the subsidy and offering up recommendations that only add to the hardship. What message does that convey to the people of our country? That our government is willing to hand out stimulus monies to companies or to other subsidy requests that have no bearing or impact on our current crisis, but not to a program designed to help our aging population, a protected class.

Since the inception of the HECM product in 1989, FHA has operated on a negative (positive profit) subsidy until now. Perhaps as an alternative solution, offer up a recommendation that would help our seniors during such hardships. For instance, paying the $789 million subsidy and recommending that FHA come up with a plan thereafter to conduct any necessary annualized analysis that would decrease the principal limit factors based on any economic shortfalls with the HECM product for sustainability.

Let me be clear when I say that I am not opposed to a reduction in FHA’s principal limit factors for HECMs, I see value in doing so in the future. As for now, I feel this not the time to implement such a process for the aforementioned reasons.

My views are shared with many when I state that we would like to see our government take a different position and change the message they are currently sending to the public. There benefits to the reverse mortgage product are numerous, it seems however, this understanding has not been fully embraced by all members of the Legislative Branch. I feel it would be a great discredit to our senior population to have uninformed decision making and comments result in repercussions adversely affecting perspective reverse mortgage borrowers who could truly benefit from the product.

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