Legislation pending in Congress would change laws governing federally insured reverse mortgages. Although these changes appear likely to occur sometime during 2008, the timing is not certain.
If enacted, the changes would affect only the federally insured Home Equity Conversion Mortgage (HECM) program. They may make HECM loans more attractive to you in the following ways:
Larger Loan Amounts
At present, HECM loan amounts are based on home values. But there are county-by-county limits on how much value can be used to determine loan amounts. Until the new legislation is enacted, the county limits will range from $200,160 in most non-metro areas to $362,790 in many urban areas.
Under the pending legislation, the county-by-county limits would be replaced by a single national limit, which is likely to be about $417,000, or perhaps higher. So if your home’s value is greater than the current limit in your county, you may qualify for a larger loan amount if the single national limit is enacted.
Lower Loan Fees
At present, the HECM origination fee is limited to whichever is less: 2 percent of a home’s value or 2 percent of the county’s home value limit. If this amount is less than $2,000, however, lenders may charge a $2,000 origination fee.
Under the pending legislation, this fee would be limited to whichever is less: 1.5 percent of a home’s value or 1.5 percent of the new single national home value limit. The $2,000 minimum fee limit is likely to remain in force (see above).
Broader Eligibility
At present, you cannot get an HECM loan if you live in a cooperative, and the program does not explicitly permit using an HECM to purchase a home. Under the pending legislation, some cooperative owners would become eligible, and using HECMs for home purchases would be explicitly permitted.
Also during 2008, HUD is expected to make changes in the HECM counseling program and the definition of the non-recourse limit in the HECM program handbook.
HECM Counseling
Based on HUD proposals during 2007, the agency is expected to issue new rules requiring that all HECM counselors must pass a national competency exam, follow a specific counseling protocol, and meet continuing education requirements.
Non-Recourse Limit
A HUD legal review has concluded that the definition of the non-recourse feature in HUD’s HECM program handbook is not accurate. Based on this finding, HUD is expected to clarify that the non-recourse limit on HECMs applies if the home is sold to repay the loan. But if the home is not sold, and the loan is repaid with other funds, then the full loan balance must be repaid, even if it exceeds the home’s value.
