Larger Reverse Mortgages Available to Seniors In 2005
Senior citizens will be able to qualify for larger reverse mortgages beginning January 1, 2005 because of new, higher loan limits, according to the National Reverse Mortgage Lenders Association, a national nonprofit trade association.
The increases will affect two reverse mortgage products: the federally insured Home Equity Conversion Mortgage (HECM), which accounts for roughly 90 percent of all reverse mortgages made in the U.S., and the Fannie Mae Home Keeper loan.
Fannie Mae announced yesterday that its loan limit for single-family mortgages, which includes Home Keeper loans, will rise in 2005 to $359,650 from the prior limit, in 2004, of $333,700. The loan limit is 50 percent higher for Alaska, Hawaii, and the U.S. Virgin Islands.
The loan limits will also increase in 2005 for the HECM product, a reverse mortgage insured by the Federal Housing Administration, a part of the U.S. Department of Housing and Urban Development (HUD). The HECM loan limit, which is pegged to increases in the Fannie Mae limit, varies by geographic area. Thus, the highest of the loan limits - applicable generally to major metropolitan areas - will increase to $312,896, up from $290,319 in 2004. The lowest loan limit, which generally applies to rural and non-metropolitan areas, will rise to $172,632, up from $160,176 in 2004. HUD must first issue an FHA Mortgagee Letter before the new HECM loan limits take effect. A letter should be forthcoming just after the New Year.
"These increases in the loan limits for the HECM and Home Keeper products will enable seniors to convert a greater portion of the equity in their homes into cash, providing a powerful tool for addressing their financial needs through retirement," said Peter Bell, president of NRMLA.
News of the loan limit increases comes at a time of rapid expansion of the reverse mortgage market. Lenders originated a record 37,829 HECM loans during the most recent federal fiscal year (FY 2004), ending September 30, a 109 percent increase over the 18,079 loans closed the previous year.
The Top 10 markets include: Los Angeles, CA (3,345 HECMs made); Santa Ana, CA (2,164); San Francisco (1,666); New York, NY (1,406); Denver, CO (1,362); Sacramento, CA (1,300); San Diego, CA (1,285); Detroit, MI (1,063); Coral Gables, FL (1,009); and Chicago (912).
A reverse mortgage is a unique loan that enables senior homeowners (62+) to convert part of the equity in their homes into tax-free income without having to sell the home, give up title, or take on new monthly mortgage payments.
Borrowers can choose to receive reverse mortgage funds as a lump sum, monthly income, or line of credit, or as a combination of these. Borrowers can use the funds for any purpose, including home repairs and improvements, medical expenses, in-home care, education, and supplemental retirement income. No mortgage payments are due during the life of the loan. The loan becomes repayable when the borrower sells the home or permanently moves out. In addition, the repayment amount can never exceed the value of the home.
To educate consumers about reverse mortgages, NRMLA has created a booklet entitled Just the FAQs: Answers to Common Questions About Reverse Mortgages. This free booklet answers frequently asked questions, provides detailed information on the loan origination process, and includes a Code of Conduct for lenders, so that consumers can know their rights when working with a lender. The booklet may be obtained by calling NRMLA at 1-866-264-4466
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