Senior Citizens Get Larger Reverse Mortgage Limits

Dec. 12, 2001 - Seniors will be able to qualify for larger reverse mortgages beginning in 2002 because of new, higher loan limits, according to a senior lenders' organization, the National Reverse Mortgage Lenders Association (NRMLA).

The increases will affect two reverse mortgage products: the federally insured Home Equity Conversion Mortgage (HECM) and the Fannie Mae Home Keeper loan.

Fannie Mae announced today that its loan limit for single-family mortgages - which includes Home Keeper loans - will rise in 2002 to $300,700 from the prior limit, in 2001, of $275,000. The loan limit is 50 percent higher for Alaska, Hawaii, and the U.S. Virgin Islands.

Fannie Mae is a private company that invests in home mortgages, including reverse mortgages.

Loan Limits
The loan limits will also increase in 2002 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/Freddie Mac loan limit, varies by geographic area. Thus, the highest of the loan limits - applicable generally to metropolitan areas - will increase to $261,609, up from $239,250 in 2001. The lowest loan ceiling, which generally applies to rural and non-metropolitan areas, will rise to $144,336, up from $132,000 in 2001. HUD must first issue an FHA Mortgagee Letter before the new HECM loan limits take effect. A letter should be forthcoming before year-end.

"These increases in the loan limits for the HECM and Home Keeper products mean that a great product - the reverse mortgage - will be even more beneficial to America's seniors," said Peter H. Bell, president of NRMLA. "For senior homeowners getting a HECM or Home Keeper loan in 2002, the new limits will enable them to tap even more of the equity in their homes to enhance their retirement."

A combination of the higher loan limits and today's dropping interest rates will allow many existing HECM borrowers to obtain more money as well.

A reverse mortgage is a unique loan that enables senior homeowners 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 a new monthly mortgage payment. Reverse mortgages are available to individuals 62 or older who own their home. Funds obtained from the reverse mortgage are tax-free.

Borrowers can choose to receive the reverse mortgage funds as a lump sum, monthly income (for up to life), or line of credit, or as a combination of monthly income and line of credit. No mortgage payments are due during the life of the loan.

Borrowers can use the funds anyway they wish - for home repairs and improvements, medical costs, in-home care, education, and supplemental retirement income. Borrowers make no monthly payments on a reverse mortgage during its term. The loan becomes repayable when the borrower sells the home or permanently moves out. In addition, the repayment amount can't exceed the value of the home.

Reverse mortgages are originated largely by private lenders. The most popular is the Home Equity Conversion Mortgage (HECM), which is insured by the Federal Housing Administration, an arm of the U.S. Department of Housing and Urban Development (HUD). More than 50,000 HECMs have been made since 1989. Other types of reverse mortgages are the Fannie Mae Home Keeper loan and two jumbo reverse mortgage products developed by Financial Freedom Senior Funding Corporation of Irvine, CA. The HECM and Home Keeper loans are available in every state.

To educate consumers about reverse mortgages, NRMLA has created the Guide to 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 (toll-free) or 202-939-1792.

NRMLA is a nonprofit trade association, based in Washington, DC, whose mission is to support the continued evolution of reverse mortgages as an important financial option for senior homeowners while educating both its members and consumers about the varied applications of this unique loan. Members sign a Code of Conduct pledging to abide by guidelines that assure fair, ethical, and respectful practices in offering and making reverse mortgages to seniors. Details on NRMLA, reverse mortgages, and a list of reverse mortgage lenders in each state are available on NRMLA's Web site, at http://www.reversemortgage.org.