The Home Equity Conversion Mortgage (HECM) is FHA's (Federal Housing Administration) reverse mortgage program which enables senior citizens to withdraw some of the equity in their home. The HECM makes up about 90% of all reverse mortgages issued and are insured by the federal government through the FHA.
The amount that can be borrowed through HECM depends on:
- Age of the borrower
- Current interest rate
- Lesser of the appraised value of your home, the HECM FHA mortgage limit for your area or the sales price
- The initial Mortgage Insurance Premium (MIP) option you choose (2% HECM Standard option or .01% HECM Saver option).
Depending on the above criteria for obtaining HECM, FHA has put up a limit for loans given to the customers. Federal housing Administration’s (FHA) maximum loan limit to the categories – Single Family Housing loan limits for Home equity conversion mortgages (HECM’s) effective from October 1, 2011 through December 31, 2011 is as stated below.
HECM’s Applicability of New Reverse Mortage loan limit
All refinance mortgages insured on or after October 1, 2011, cannot exceed 150% of the national conforming limit of $417,000. For the period October 1, 2011 through December 31, 2011, the loan limit and maximum claim amount for FHA-insured HECM’s will remain at $625,500 (150% of federal home loan mortgage corporation national conforming limit of $417,000). This maximum FHA loan limit and maximum claim amount of $625,500 is also applicable to special exception areas – Alaska, Hawaii, Guam, and the Virgin Islands.
While calculating the above cap limits, the FHA uses national floor limits and ceiling limits to determine individual county limits. The FHA divides loan types into two categories that represent the high-cost areas and the low-cost areas. From there, the agency calculates cap limits according to home size in terms of 1-unit, 2-unit, 3-unit and 4-unit properties. As of 2011, one-unit properties in high-cost areas have a ceiling cap limit of $729,750 per loan amount, according to DS News, a mortgage industry news website. Maximum caps for low-cost areas determine the national guideline for floor limits. As of 2011, one-unit properties in low-cost areas have a floor cap limit of $271,050 per loan amount.
Total number of HECM reverse mortgage loans obtained by the U.S. citizens from 1990 to 2012 is 734,602units. In 2011, total of 73,131 loans were obtained as compared to 79,106 in 2010. For the decade 1990 to 2000, there was an increase with an average of approximately 142.25% in the volumes of HECM’s obtained by U.S. citizens.
The percentage of HECM reverse mortgages could have been even more if there wasn’t any decline from the year 1995 to 1996 and from 1999 to 2000. From 2000-2009 there was an average increase of 141.22%, but from 2009 to 2010 there was a decrease of 33.29% in the volumes of HECM’s issued by the companies due to economic crisis. Wells Fargo Bank which is the highest lender to date has decided to opt out from reverse mortgage business. The company has decided to stop lending reverse mortgage loans from September 2011