HECM Principal Limit To Decline by 10%

Breaking News from Peter Bell, NRMLA President:

I [Peter Bell] just got off a phone call with FHA Commissioner David Stevens and HUD Assistant Secretary for Congressional Relations Peter Kovar, who called to tell me that HUD has posted a Mortgagee Letter implementing the 10% haircut in principal limit factors, effective for all loans on which applications are taken on or after October 1, 2009.

In a nutshell, the Commissioner explained that from its enactment, the HECM program was intended to operate without any credit subsidy. While one might argue with OMB’s recent assessment, the fact is that OMB’s number is the “governing” number here and accordingly, there needs to be credit subsidy, or program changes, in order for the HECM program to continue operating once the new federal fiscal year begins on October 1. 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.

The Commissioner offered to attend a meeting, or series of meetings, with a delegation from NRMLA to discuss the future of the HECM program and reiterated that policy changes can be made as needed, so we can revisit the principal limit issue and other issues, such as re-engineering the MIP over the months ahead. However, he made clear that they needed to make the change that they are making right now and there is nothing else to be done about it.

You can download the mortgagee letter by clicking here.

Peter Bell, President
NRMLA

Any potential borrower who may be affected by this decrease and is sitting on the fence should consider proceeding with a reverse mortgage now. Several borrowers may now need to come in with cash to close due to the decrease. An analysis of year-to-date loan volume at some of the major lenders has indicated that a 10% reduction in principal limits would have left approximately 21% of borrowers with proceeds too short to cover their existing indebtedness on their homes. Many counseling companies are increasing staff and office hours to accommodate the potential influx in counseling requests due the short notice given by HUD. MLS Reverse Mortgage is available to answer your questions at 1-888-888-4834.

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