by JON PRIOR Housingwire.com
The Federal Housing Administration conforming loan limit on forward mortgages is set to drop in October but not so for reverse mortgages.
The Department of Housing and Urban Development will extend the $625,500 maximum loan amount for a reverse or Home Equity Conversion Mortgage through Dec. 31, 2011 according to a lender letter sent Friday.
HECMs allow the borrower, who must be at least 62 years old, to convert a portion of the equity in the home for cash. Lenders do not require repayment until the borrower no longer uses the home as a principal residence, often in the event of death.
The limit is 150% above the cap set by Freddie Mac. It is the maximum loan amount FHA will insure.
HUD sent the letter out Friday, alerting lenders to the pending drop for forward mortgages to $625,500 from $729,750 in the most expensive neighborhoods. In areas where 115% of the median house price exceeds the current conforming loan limit, it will go unchanged in October. Congress pushed the limits for FHA, Fannie Mae and Freddie Mac up in 2008 to keep the mortgage market liquid through the financial crisis.
The extended loan limits for reverse mortgages applies to all HECMs made in the U.S., including Hawaii, Alaska, Guam and the U.S. Virgin Islands.
Peter Bell, president of the National Reverse Mortgage Lenders Association said he hoped HUD and Congress would extend the higher loan limits beyond 2011.
“We’re glad to see that HUD has taken this interim step,” Bell said. “It helps eliminate uncertainty for seniors in the process of getting or contemplating a reverse mortgage and takes pressure off of counseling agencies with clients who want to be counseled in time to take advantage of current loan limits.”