Reverse Mortgages SIDAC What's New

Twin Cities Metro Counties Have HECM Lending Limit Increase

Effective January 28, 2007 the FHA Lending Limits in the Twin Cities Metro were increased from $251,750 to $276,683. However, the national lending limits did not change for 2007.

FHA’s Lending Limits are based on the county in which one lives. The base and high limits are: $200,160 and $362,790. In Minnesota, the Lending Limits are $200,160 except for the following counties where now they are:

Anoka $276,683
Carver $276,683
Chisago $276,683
Dakota $276,683
Hennepin $276,683
Isanti $276,683
Ramsey $276,683
Scott $276,683
Sherburne $276,683
Washtington $276,683
Wright $276,683

To determine the loan amount on the FHA HECM (Home Equity Conversion Mortgage), the lending limit or home value, whichever is lower, is used. For example, the value of one's home may be $500,000 but FHA will use the Lending Limit of $200,160 (rural counties) or $276,683 (metro counties) to calculate the loan amount for a FHA HECM.

July 18,2005 brought the long awaited approval of the Rate Lock-in for HECM Reverse Mortgages. Also called, Principal Limit Protection, this new HUD policy reduces some of the uncertainty of the loan amount between the time of application and the closing date.

To understand the value of this, you need to know how the loan amount is determined: The loan amount, or Principal Limit, of a Reverse Mortgage is determined by the age of the youngest borrower, the home value or FHA lending limit, and the Expected Interest Rate. The Expected Interest Rate is based on the 10-year U.S. Treasury Bill and changes weekly for calculation purposes. Prior to the rate lock-in, the Principal Limit could not be determined until the week of closing because the Expected Interest Rate changed weekly.

Now with the new policy, when the borrower closes, the Principal Limit can be calculated using the Expected Interest Rate at the time of application or at closing, whichever is lower. Sometimes the rate can change enough between the time of application until closing making a several thousand dollar difference in funds available to the borrower(s). Then, sometimes, at the time of closing we would find there wouldn’t be enough proceeds to achieve the goals of the borrower(s), such as using the reverse mortgage to pay off current liens.

For example: On a $230,000 home for a 73 year old borrower, if the Expected Interest at the time of application is 5.59%, the Principal Limit is $161,690. If at the time of closing the Expected rate is 5.74%, the Principal Limit would be $158,630. In this example, the rate at the time of application would be used making $3,060 more available to the borrower.

Now, we don’t have to wait until closing to determine if there will be enough funds. If there are enough proceeds at the time of the application, we can have an assurance that if the actual appraised value of the home is the same, or greater, as the estimate used at the time of application, the Principal Limit will be protected. The borrower will receive the higher maximum amount available.

The catch is the loan needs to be closed within 60 days from the date the FHA Case Number is assigned. This number is needed to order the FHA Appraisal needed to do a reverse mortgage. If the loan is closed on day 61, the Expected Rate at the time of closing would be used. It is important borrowers work with a lender, such as Reverse Mortgages SIDAC, that have the knowledge, experience, and reputation of processing reverse mortgage loans in 30 to 45 days.

Refinancing an existing HUD reverse mortgage, the Home Equity Conversion Mortgage (HECM), has become less expensive. In March 2005, the details were worked out and HUD’s Streamline Refinance was implemented. When a borrower applies to refinance their existing HECM, the FHA Initial Mortgage Insurance Premium (MIP) is reduced to the difference in the original Principal Limit (the previous HECM reverse mortgage) and the Current Principal Limit (the new HECM reverse mortgage)..

The lender needs to obtain the information on the original HECM to determine what the new reduced MIP will be. The borrowers are required to sign an Anti-Churning Disclosure that must be issued at the time of the Good Faith Estimate form per the Real Estate Settlement Procedures Act (RESPA)

In order to ensure that the HECM refinance will be of benefit to the borrower, the lender is required to provide the total cost of the refinancing and the best estimate of the funds available after the closing costs and other fees. In determining whether refinancing is viable for a borrower, the borrower should take into consideration the total costs of the reverse mortgage (all other costs are not reduced) and review whether they will be receiving enough proceeds to meet their needs.

Although HUD has stated it could be waived if certain criteria is met, the lenders generally still require the free third-party counseling for refinancing a reverse mortgage.

For further clarification and to determine whether refinancing an existing HECM reverse mortgage, contact Reverse Mortgages SIDAC.