Citing its fiduciary responsibility to taxpayers and ensuring that its mortgage insurance programs remain viable and effective in the long term, the Department of Housing and Urban Development today announced changes to principal limit factors and mortgage insurance premiums with the publication of Mortgagee Letter 2017-12.
Effective for case numbers assigned on or after October 2, 2017, borrowers will pay insurance premiums equal to two percent of the maximum claim amount upfront and 0.5 percent annually over the course of the loan, regardless of how much equity they access at closing.
Currently, borrowers pay 0.5 percent upfront if they access less than 60 percent of the loan proceeds upfront and 2.5 percent if they take more, and 1.25 percent annually.
The new principal limit factor table can be accessed on HUD’s web site. The Wall Street Journal reported this morning that on “balance, most seniors will also be able to borrow less money. The average borrower at current interest rates will be able to borrow roughly 58 percent of the value of their home, down from 64 percent. While most younger seniors will be able to borrow less, some older ones may be able to borrow more.”
NRMLA issued the following statement in response:
HUD’s announcement today of changes in the Mortgage Insurance Premium and Principal Limit Factors for the HECM program should be interpreted in two ways. On one hand, it reaffirms the Secretary and Department’s commitment to sustaining FHA’s reverse mortgage program for older homeowners while protecting the MMI fund and taxpayers from future draws on the Treasury. Bringing an element of stability to the fluctuation exhibited in recent valuations of the HECM portfolio is an important step forward for assuring the long-term viability of the program and availability of reverse mortgages to older middle-income homeowners.
On the other hand, these changes diminish the benefit (amount of loan proceeds) available and increase the costs (increased upfront Mortgage Insurance Premium) to most borrowers.
Adjustments to the principal limit factors and mortgage insurance premiums have historically been HUD’s levers for smoothing volatility in the year-over-year cost projections of the program. We believe that there are alternative options for better managing the HECM program to reduce its overall costs and will continue to advocate for such beneficial changes to the program. If and once our recommended changes are adopted by FHA, we hope that future evaluations of the program will permit HUD to restore the diminished benefits.
We are still reviewing the new PLF tables to determine the impact the change will have on borrowers and the fund, but appreciate HUD’s continued efforts to underscore the value of the HECM program to our nation’s seniors.