The Federal Housing Administration has increased the maximum claim amount for reverse mortgages for the third consecutive year, announcing Friday that it will raise HECM claim amounts to $726,525 in 2019.
This is up from 2018’s limit of $675,650. The number is based on 150% of the Federal Housing Finance Agency’s conforming loan limits for Fannie Mae and Freddie Mac, which were raised last month to $484,350.
The industry has been abuzz with speculation as to whether or not the FHA would choose to increase the claim amount, with many assessing what the increase might mean for the reverse mortgage industry.
In essence, the new limit means that borrowers will now be able to extract more equity from their homes using a government-insured reverse mortgage.
Dan Hultquist, vice president of education and organizational development at Live Well Financial, recently broke it down for HousingWire.
Hultquist said that, assuming a 5.25% expected rate, the average 73-year-old borrower with a high-value home could get almost $22,000 more in proceeds with a HECM.
It also might mean that more consumers could qualify for the loan.
Because the HECM requires borrowers to pay off an existing mortgage before obtaining the loan, some borrowers with high mortgage balances were not able to secure enough proceeds to qualify. Now, with a higher claim amount, there may just be enough to make it work.
Finally, with a higher claim amount, FHA’s has closed the gap slightly between its offering and proprietary reverse mortgages, which cater to borrowers with higher-value homes. And, importantly, these borrowers are beneficial to FHA’s Mutual Mortgage Insurance Fund, as they are low risk and pay higher premiums.
With higher lending limits, borrowers with higher-priced properties may have more incentive to choose a HECM.