News on Reverse Mortgages in the USA

September 2008

The Housing and Economic Recovery Act of 2008
On July 30, 2008, President Bush signed the Housing and Economic Recovery Act of 2008 into law. This sweeping legislation is aimed at easing the current mortgage and housing industry crisis that is helping to fuel the county's economic down turn.

While the bill covers topics ranging from the elimination of insurance portfolio caps for mortgage lenders to changes in the underwriting criteria for manufactured housing, there are several provisions that have a direct impact upon reverse mortgage originators and lenders.

Because of the large number of sections in the law that effect reverse mortgages, we will deal with the specific secions over several issues of this newsletter, rather than in one long issue.

Lending Limits
The best news is that the new law will raise the FHA maximum loan limit to $417,000 in most areas of the country, except for certain high cost areas (mainly in California, Colorado and the District of Columbia) where the limit can be considerably more than $417,000. Previously, the maximum loan limit was based on the median price of housing in a given county or Metropolitan Statistical Area (MSA).

By allowing for a larger maximum loan amount, this provision enables seniors who obatain a reverse mortgage under FHA's Home Equity Conversion Mortgage (HECM) program to access more of their home equity.

This provision creates opportunities for new borrowers to enter the HECM market where the previous FHA loan limit made the loan either unaffordable because the loan proceeds failed to cover the existing liens and closing costs or unattractive because the proceeds of the loan were too small to make refinancing a sensible option.

This section of the law also provides refinancing opportunities for exisiting reverse mortgagees in higher value properties because the increased FHA lending limit will allow them to access more of their home equity.